From Nasdaq: 2024-06-23 05:36:00

The top three largest tech companies by market cap are Nvidia, Microsoft, and Apple, all valued over $3.25 trillion. The State Street Technology Select Sector SPDR Fund holds these stocks, with Microsoft and Apple dominating. NVIDIA will soon jump in weighting due to their high market cap. These unconventional rules could hurt investors as they oversell Apple and overbuy Nvidia. A better alternative may be the Vanguard Information Technology ETF with a more balanced portfolio.

Both Nvidia and Microsoft have been strong AI performers, with Nvidia leading the way in GPU technology while Microsoft has seen success with Azure and AI products. The State Street Technology Select Sector SPDR Fund ETF’s heavy weighting in these stocks poses some risks as the ETF might miss out on Nvidia’s future gains and a poor showing from Nvidia could significantly impact its performance. Investors may want to consider the Vanguard Information Technology ETF as a better option for tech exposure.

The Vanguard Information Technology ETF offers a more balanced portfolio with large holdings in Nvidia and Microsoft but the other positions are smaller, providing a more diversified exposure to the tech sector. The ETF has been a strong performer, with an average annual return of 20.3% over the past decade, comparable to the State Street fund. The absence of rebalancing quirks makes it a favorable choice for investors seeking exposure to AI leaders.

While there is potential for strong returns with the State Street Technology Select Sector SPDR Fund, the unusual weighting rules could lead to questionable stock transactions, hurting shareholders in the long run. The Vanguard Information Technology ETF offers a balanced portfolio with heavy weightings in Nvidia and Microsoft without the same risks associated with the State Street fund. Investors looking for tech exposure may find a better option in the Vanguard ETF instead.



Read more at Nasdaq: Nvidia and Microsoft Will Make Up Over 40% of This Popular ETF. Here’s Why This Alternative ETF Could Be a Better Option.