Many investors also rely on ETFs for their investments because they can add a whole basket of stocks to their portfolio via the exchange-traded index funds and thus diversify it. However, the performance of many ETFs often only depends on a large value contained in them. For example, NVIDIA shares have a major influence on the performance of semiconductor ETFs, but also on that of broader tech ETFs.
• NVIDIA heavily weighted in many ETFs
• Performance of the ETFs depends heavily on the performance of NVIDIA shares
• Favorable over the course of the year, but recently a minor setback
Often only a few stocks, the so-called heavyweights, are decisive for the performance of large indices. For this reason, a rebalancing of the NASDAQ 100 was even carried out in the USA in the summer, as the “Magnificent Seven” – consisting of the major tech stocks Microsoft, Apple, NVIDIA, Amazon, Tesla, Meta, Alphabet – due to their high market capitalization had achieved too much weight in the index and made up more than half of the NASDAQ 100. The new regulation limited their influence somewhat, but “Big Tech” still remained highly weighted.
The same problem can also be seen in many ETFs that replicate the performance of such indices or focus on specific sectors or industries. For example, NVIDIA stock is heavily represented in ETFs that track the tech, AI or semiconductor industries. This is of course an advantage for the performance of the ETFs as long as NVIDIA shares are doing well. The chip giant’s paper has gained around 176 percent in value since the beginning of the year (as of the closing price on October 23rd) – and thus also given a boost to the performance of one or two listed index funds. However, it also makes the ETFs vulnerable to setbacks if there are price losses for the highly weighted stock. For example, NVIDIA shares suffered significantly from numerous ETFs in mid-October when they came under pressure due to the USA’s new restrictions on the export of its own A800 and H800 chips to China. On the day alone that the new regulation, which is intended to deny China access to highly developed semiconductor technology, was announced, the otherwise strong NVIDIA shares fell by 4.68 percent. On the following days, it temporarily increased its minus – in relation to the closing price on the last trading day before the announcement – by up to 10.2 percent before a partial recovery began again. ETFs in which NVIDIA shares were represented with a high proportion were dragged down and, according to “Investopedia”, lost between three and four percent of their value within a few days.
NVIDIA shares are heavily weighted in numerous ETFs
NVIDIA operates in many different businesses, which warrants the company’s stock being included in a variety of thematic ETFs – from Metaverse to Future Mobility. According to “ETF Stream”, thematic ETFs with a focus on semiconductors, metaverse and artificial intelligence (AI) have a particularly high NVIDIA weighting – and are therefore particularly exposed to the US group’s price movements. But the chip giant’s shares are also heavily weighted in ETFs on the MSCI World Information Technology Index, the NASDAQ 100 or the S&P 500 due to its high market capitalization. Because NVIDIA is one of the few companies that have a market value of more than one trillion US dollars.
The NVIDIA share is particularly well represented in the Amundi MSCI Semiconductors ESG Screened UCITS ETF, where, according to the fund prospectus from the end of September 2023, it is by far the largest position with a share of 28.45 percent. Other ETFs that rely particularly on NVIDIA include the Global Share of 15.6 percent came, and the Amundi S&P Global Information Technology ESG ETF, which most recently contained 13.31 percent NVIDIA. As of the beginning of October, the iShares family also includes the iShares S&P 500 Information Technology Sector ETF, the iShares MSCI World Information Technology Sector ESG ETF and the iShares MSCI Global Semiconductors ETF with 11.91 percent, 10.96 percent and 7, respectively .19 percent strong on the US group.
The NVIDIA paper is also well represented in the VanEck Semiconductor ETF. The chip giant’s share price there reached 9.86 percent at the end of September. However, a rule that limits the weight of each component to a maximum of ten percent in order to avoid concentration risks prevents individual components from being overweighted. The same applies to the HSBC NASDAQ Global Semiconductor ETF, which also regularly rebalances so that no value contained in it has a weight of more than eight percent. The NVIDIA share was represented in this ETF at 7.56 percent at the end of September.
In addition, a smaller portion of NVIDIA shares is also included in the Xtrackers Future Mobility ETF, the Xtrackers Artificial Intelligence & Big Data ETF, the Franklin Metaverse ETF and the Invesco QQQ Trust, among others.
Given this selection, investors are left to decide whether they want to invest in a sector ETF whose performance is actually based on the stock movements of various stocks from the relevant sector, or whether they choose an ETF whose success is largely due to that of NVIDIA hangs. The latter has not proven to be a major disadvantage, at least so far, as the price of NVIDIA shares has almost tripled since the beginning of the year – despite the recent setback.
Editorial team finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.
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