(Bloomberg) -- The Big Tech boom is causing headaches for all-powerful index providers on Wall Street, who can send billions of benchmark-tracking dollars on...
-- The Big Tech boom is causing headaches for all-powerful index providers on Wall Street, who can send billions of benchmark-tracking dollars on the move with just a stroke of the pen.Two of the world’s biggest – FTSE Russell and S&P Dow Jones Indices – are presenting plans to undercut the weighting of the largest megacap companies in key indexes. The rare intervention comes as the US equity market becomes increasingly lopsided thanks to the growing dominance of the likes of Nvidia Corp .
Russell’s consultation, which is about capping the weighting of the largest members of its widely followed US growth and value gauges, is open until Aug. 30, with no time frame set for implementation. Russell already offers a suite of capped indexes to supplement its more traditional, unconstrained measures. What’s being considered now is whether to apply weight caps to its standard style gauges, according to Catherine Yoshimoto, director of product management at FTSE Russell, an LSEG business. More than $7 trillion of assets are benchmarked to the firm’s style indexes.
When it comes to adhering to the 25/5/50 limits, index managers use differing mechanisms to cap a company’s weight, as well as different triggers for when that process kicks in Then, when Nvidia eclipsed Apple in June, it sparked a rebalance in which XLK bought an estimated $11 billion shares of the chipmaker at the expense of the iPhone manufacturer. Now that their positions are flipped again, XLK is at risk of another round of big shuffling. Should the current rankings hold until the next quarterly rebalance due September, Nvidia’s weight in the fund may have to drop to 4.5% from 21% as Apple’s spikes to 22% from 4.8%, based on the existing methodology.
Bloomberg Nvidia Corp S&P Dow Jones Indices Passive Strategies Equity Market Catherine Yoshimoto
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