Finimize - 👋 Nvidia's in, Apple's out

One of the biggest tech ETFs needs to swap out its tech giants | US tech pushed the S&P 500 to yet another record high |
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Hi Reader, here's what you need to know for June 19th in 3:12 minutes.

☕️ Finimized over a prana chai at Caffiend in Cairns, Australia (🌤 26°C/79°F)

Today's big stories

  1. One of the world’s leading exchange-traded funds will soon be bulking up on Nvidia, while slimming down its Apple weight
  2. This segment of Europe’s real estate market might be worth checking out now – Read Now
  3. The S&P 500 hit a new record, but not everyone’s convinced it has the stamina to keep going

Re-Balancing Act

Re-Balancing Act

What’s going on here?

The Technology Select Sector SPDR Fund (ticker: XLK) – one of the world’s most prominent tech ETFs – looks set to load up on Nvidia.

What does this mean?

XLK is designed to passively track an index made up of tech companies in the S&P 500. But clearly, the fund leaves some room for artistic license: while Nvidia makes up 22% of the S&P tech index, it represents just 6% of the ETF. See, old diversification rules mean that the combined weight of the biggest companies – those making up over 5% of the diversified fund – can’t add up to more than 50%. Problem is, Microsoft, Nvidia, and Apple each make up more than 20% of the S&P tech index. XLK’s chosen solution means the fund mimics the weight of the two biggest stocks, while making sure the third doesn’t breach the limit. So now that Nvidia has overtaken Apple as the world’s second-biggest tech company, XLK is set to triple the chipmaker’s weight during its quarterly rebalance later this month.

Why should I care?

For markets: Let’s talk numbers.

XLK will upgrade Nvidia’s weight from 6% to 21%, while Apple’s will be cut from 22% to 5%. The shift would mean State Street, the ETF’s manager, will need to buy $11 billion of Nvidia shares and sell $12 billion of Apple. That’s a major spring clean: the Apple sale alone matches the company’s average daily trading value over the past three months.

The bigger picture: This isn’t copy-and-paste.

Passive index funds are meant to track a benchmark, but this reshuffle is an extreme example of how far they can stray. Bear in mind, too, that XLK’s shrunken Nvidia allocation means its investors have missed out on the full effect of the chipmaker’s show-stopping rise. In fact, XLK has trailed the S&P tech index by five percentage points this quarter – the biggest gap since 2001.

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Analyst Take

Why It Might Be Time To Think About European Real Estate Again

Why It Might Be Time To Think About European Real Estate Again

In Europe, interest rates have begun to fall from their peaks, and that’s got property prices on, well, firmer ground.

So it may be time to give the market’s “living” sector a second look.

This real estate category – which includes student accommodations, senior-living residences, and privately rented housing – has seen its prices tumble, but with its resilience, inflation-linked cash flows, and consistent risk-adjusted returns, it’s showing off plenty of curb appeal.

That’s today’s Insight: this may be the best-looking corner of Europe’s real estate market.

Read or listen to the Insight here

Bulls have horns for a reason

Change might scare some of us – but it excites plenty, too.

Case in point: when financial markets start moving as quickly as they are today, many investors take the opportunity to go against the grain or seek quick turnaround trades.

That’s where leveraged and inverse ETFs come in. The first lets traders amplify their high-conviction trades, while the latter lets traders bet on price dips without having to “short” assets. 

That means you could put a bigger bet on a market move or technical signal without accessing more capital. So if you’re a risk-tolerant trader, you’ll want to find out how to use them safely and effectively.

Our free guide with Direxion – a platform that specializes in tools for decisive investors – has the lowdown: discover how you could use leveraged and inverse ETFs to amplify your trades.

Find Out More

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. Click here to obtain a Fund’s prospectus and summary prospectus or call 866-476-7523. A Fund’s prospectus and summary prospectus should be read carefully before investing.

Leveraged and Inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.

Direxion Funds Risks — An investment in the Funds involves risk, including the possible loss of principal. The Funds are non-diversified and include risks associated with concentration risk which results from the Funds’ investments in a particular industry or sector and can increase volatility over time. Active and frequent trading associated with a regular rebalance of a fund can cause the price to fluctuate, therefore impacting its performance compared to other investment vehicles. For other risks including correlation, compounding, market volatility and risks specific to an industry or sector, please read the prospectus.

Direxion Shares ETF Risks — An investment in the ETFs involves risk, including the possible loss of principal. The ETFs are non-diversified and include risks associated with concentration that results from an ETF’s investments in a particular industry, sector or company, which can increase volatility. The leveraged and inverse ETF utilize derivatives, such as futures contracts and swaps which are subject to market risks that may cause their price to fluctuate over time. The leveraged and inverse ETFs do not attempt to, and should not be expected to, provide returns which are a multiple of the return of their respective index or underlying security for periods other than a single day. The leveraged and inverse ETFs may also be subject to leverage, correlation, daily compounding, market volatility and risks specific to an industry, sector or company. The non-leveraged ETFs are subject to certain risks, including imperfect index correlation and market price variance, which may decrease performance. The non-leveraged ETFs may invest in a relatively small number of issuers and, as a result, be subject to greater risk of loss with respect to its portfolio securities. The non-leveraged ETFs may experience greater fluctuation in its net asset value as compared to other investments. The non-leveraged ETFs may be appropriate for investors with a long-term investment time horizon, who primarily seek capital growth, and who are able to tolerate periods of prolonged price declines. Please read each ETF’s prospectus for a more complete description of the investment risks. There is no guarantee that an ETF will achieve its investment objective.

Distributor: Foreside Fund Services, LLC.

Broken Record

Broken Record

What’s going on here?

The S&P 500 broke yet another record, as investors pledged their allegiance to US tech stocks (again, and again, and again).

What does this mean?

The “Magnificent Seven” stocks – Amazon, Nvidia, Apple, Microsoft, Alphabet, Tesla, and Meta – have climbed an impressive 37% this year. That’s pulled the S&P 500 up by 15%, enough to see the index hit its 30th record high this year. But tech isn’t the only buoy for US stocks: a strong economy, companies reporting better performance, and potential interest rate cuts are all attracting investors to the index. Factor in the AI hype and cooling inflation, and it’s no wonder stocks have been on a tear. Optimistic analysts even speculate that investors might move some of the $6 trillion that’s currently held in money-market funds into stocks, giving the rally another leg up.

Why should I care?

Zooming out: The other side of the coin.

Citigroup, Goldman Sachs, and Evercore have all upped their forecasts, expecting the index to rise at least another 2%. Mind you, the average outlook still predicts a drop. You can see why: more stocks have been slipping than climbing recently. Plus, the uncertain timeline for widespread AI use could put investors off tech, while a slowing economy could squeeze profit as companies lose the ability to up their prices. Even hedge funds are playing it safe, cutting their market exposure – essentially their risk levels – by the most since March 2022.

The bigger picture: Incredible India.

The US isn’t the only one making waves: India’s stock market hit over $5 trillion for the first time on Tuesday. Indian stocks have been in especially high demand since the prime minister secured enough support to form a new coalition government, which could promote stability in the world’s fastest-growing major economy. The cherry on top was a recent upgrade of India’s sovereign credit ratings by S&P Global Ratings.

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💬 Quote of the day

"We shall overcome because the arc of the moral universe is long, but it bends toward justice."

— Dr. Martin Luther King Jr. (an American civil rights activist)
Tweet this

By now, Brits have had some time to work their way around Robinhood's recently launched UK arm.

But no matter how far you dig, and from where, you won't find the platform's secret sauce – you know, the stuff that gets investors hooked.

Unless you look over here, that is: our analysts looked under “the hood” to see how the neobroker uses content to drive investor engagement – and how you can do the same.

See How Robinhood Does It

👀 Japan’s Stocks Are Suddenly More Volatile

The Bank of Japan (BoJ) has been a big player in the country’s stock market.

Back in 2010, the central bank began buying ETFs as part of a program that it ramped up in 2013, 2019, and 2020.

But on March 19th of this year, it announced an end to the program. Our analyst Russell did some digging, to find out what might happen next.

Read The Quicktake

🎯 On Our Radar

1. Worm charmers. Meet the two hunters on the lookout for earthworms.

2. Bitcoin's highs have come with some serious lows. Find out how to invest in crypto without the emotional rollercoaster.*

3. Nature’s pest control. Here are the predators that prey on insects.

4. Time to take your first steps. Here's how to get started on your investment journey.**

5. Big business. A look inside how climbing Mount Everest has become an industry in its own right.

**Your capital is at risk. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

🌍 Finimize Live

🤩 Coming up soon...

All events in UK time.
🤑 How AI Can Help You Invest Like The Wealthy: 5pm, June 25th
🏔️ Gaining An Edge Beyond ETFs: 8pm, July 9th
💃🏼 Finimize Ladies Investing Club: 6.30pm, July 18th
🚀 2024 Modern Investor Summit: 2pm, December 3rd

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