The jockeying between the biggest stocks in the U.S. market takes on extra importance Friday, as a strong close to the week for Nvidia could cause a huge shift in a $70 billion fund. At stake is one of the top two spots in the Technology Select Sector SPDR Fund (XLK) , whose June rebalance is based on market cap values as of Friday’s close. Apple and Microsoft are the two biggest holdings in the fund, at roughly 22% each. Nvidia makes up less than 6% despite being only slightly behind the two leaders in market cap. The rules used by S & P Dow Jones Indices suggest a similar gap could occur again at this quarterly rebalance, and the race to be among the top two appears to be coming down to the last day. The market caps of Microsoft, Apple and Nvidia were all within $100 billion of each other as of Thursday’s close, according to a FactSet calculation. The index followed by the XLK uses a float-adjusted market cap to make the determination, so traders may need to wait for S & P Dow Jones Indices’ official call to be sure of the final order. Projections from a June 12 UBS note suggested that, if Nvidia climbs to second and bumps Apple to third, it could result in the chipmaker’s weight in the fund vaulting to 21%, while Apple would be slimmed down to just 4.5%. A 15-percentage-point swing in Nvidia’s weight would mean that the fund would need to acquire more than $10 billion worth of shares in the chipmaker — all on or very close to June 21, the rebalance date. For context, there was roughly $50 billion of total Nvidia volume on Friday, June 7, according to FactSet. This type of big shift in an index fund is unusual, but not unprecedented. Matthew Bartolini, head of SPDR Americas Research, pointed to rebalances around changes to sector classification, like when Amazon was moved to the consumer discretionary category, as an example. “If we are forced to have a pretty significant trade, I think we are well equipped to handle those,” Bartolini said. How it works The current gap between Nvidia and Apple is caused by the massive size of just a handful of tech stocks and the diversification rules that govern the fund. The fund tracks an index from S & P Dow Jones Indices that uses weighting caps to keep the index in bounds. Those include a limit of 23% for the biggest stocks, and a cumulative weight of less than 50% for all stocks with a share greater than 4.8%. Therefore, if two of the tech giants account for over 20% of the index apiece, then the third stock in line has to be set well below its relative market cap. State Street and other fund issuers will have a week to prepare for the index changes. ETFs work with banks to buy and sell large quantities of stocks around rebalancing, explained Mohit Bajaj, director of ETF Trading Solutions at WallachBeth Capital. Sometimes these moves show up as distinct inflows and outflows and are called “heartbeat trades.” Bartolini said that SPDR does not comment on trading strategies around rebalances. Professional traders can sometimes pre-position, or front-run, this type of big change to take advantage of lopsided demand, though this practice has decreased over time, according to Bajaj. “The close has become so efficient now. Depending on how many shares of Nvidia are required, it might cause a short-term spike in the name,” Bajaj said. SPDR is not the only fund family that tracks S & P Dow Jones Indices, either directly or indirectly, and the sector funds are not the only ones being rebalanced this month. That could mean that shifts in other products could help offset any big changes in the XLK. Concentration risk The potential shuffle in the XLK is a mechanical example of some of the issues caused by historically large weight of just a few companies in stock portfolios. Some investors and market strategists have been worried about the weight of the so-called “Magnificent 7” throughout this market rally, which began in late 2022. In 2024, the group of top stocks has gotten even narrower. According to a June 11 note from Strategas ETF strategist Todd Sohn, Nvidia, Apple and Microsoft all account for more than 6% of the entire S & P 500, with Nvidia responsible for 35% of the index’s year to date gains. In State Street Global Advisors’ mid-year ETF outlook, the firm suggest investors take a look at equal-weighted strategies like the SPDR NYSE Technology ETF (XNTK) to pull some risk away from those few stocks. “A more equal-weighted position across tech and communications services and consumer discretionary stocks that are on the forefront of AI might actually help balance out those concentration risks, while also still allowing you to partake in this theme,” Bartolini said. — CNBC’s Michael Bloom contributed reporting.