Nvidia (NASDAQ: NVDA) is a $5.1 trillion company, roughly six times the size of AMD (NASDAQ: AMD). But in the $45 billion iShares Semiconductor ETF (NASDAQ: SOXX), the chipmaker no longer sits on top.
As of July 15, AMD was the fund's largest holding at 8.51% of assets, with Nvidia second at 8.35% and Micron Technology (NASDAQ: MU) close behind at 7.73%, according to the fund's own holdings data. Broadcom sits fourth at 7.32%, packing the top four into a spread of just over one percentage point. The gaps are thin enough that a single trading day could reorder them.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
A year ago, that ordering would have been hard to imagine. Micron traded below $120 per share last July. As of this writing, the stock is up more than 600% over the past 12 months, and AMD has gained more than 200%. Nvidia, over the same stretch, has risen about 22%.
Of course, the fund isn't making a judgment about which company is best. Its math is mechanical. But that math is worth understanding, because it measures where the semiconductor rally's gains have actually landed over the past year.
The exchange-traded fund (ETF) tracks the NYSE Semiconductor Index, which holds the 30 largest U.S.-listed semiconductor companies and weights them by float-adjusted market capitalization — with a catch. The five largest stocks are capped at 8% of the index when weights are reset, and every other holding at 4%. The index rebalances quarterly, most recently after the third Friday of June.
That cap is arguably the most important thing to understand about the fund. Left to pure market-cap math, Nvidia's $5.1 trillion valuation would run several times the 8% limit and dominate the entire fund. Instead, Nvidia gets pinned at the ceiling alongside anything else that outgrows it. Between resets, weights simply drift with share prices.
So the top of this fund doesn't rank company size. It ranks share-price momentum since the last reset. AMD's stock has outrun Nvidia's since the June rebalance, and that is the entire reason it now sits on top. Come the index's September reconstitution, anything riding above the cap gets pinned right back at 8%, and the drift starts over.
The reshuffle's real message is in the stock charts — and in the results behind them.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
