How Much Impact Can One Stock Have on SPY? A LOT

How much impact can one stock have on an index fund? A lot—if that stock is Nvidia.  

Shares of the chip company are up an eye-popping 50% so far this year, equal to a market cap gain of $545 billion. 

That’s no small amount, even for a broad, large cap index fund like the SPDR S&P 500 ETF Trust (SPY). This year’s surge in Nvidia accounts for 1.25 percentage points of the ETF’s 4.9% return. 

If Nvidia sticks around this level, it’s potential pull on the ETF is going to be even greater moving forward. Today, the stock has a 4.1% weighting in the S&P 500, behind only Apple and Microsoft.  

The Big Get Bigger 

For ETFs targeting narrower indices, Nvidia’s impact is more magnified. The VanEck Semiconductor ETF (SMH) owes about eight percentage points of this year’s 20% gain to the stock.  

Nvidia comprises a quarter of the ETF’s portfolio, much more than even the 10% position it has in the other big semiconductor exchange-traded fund, the iShares Semiconductor ETF (SOXX). 

Other ETFs that have massive weightings in the chipmaker include the AXS Esoterica NextG Economy ETF (WUGI), the Global X Robotics & Artificial Intelligence ETF (BOTZ) and the Grizzle Growth ETF (DARP).  

But while it’s not unusual to see single stocks like Nvidia play an outsized role in driving returns for sector, industry and thematic ETFs, it’s much rarer to see them play such a major role in driving performance for broad market funds like SPY. 

Yet that’s increasingly been the case as America’s biggest companies keep getting bigger.  

Understandably, that has a lot of investors on edge. If a handful of the top stocks in the S&P 500 fall out of bed, they could take the whole index down with them. 

But those fears have been around for years, and all the while, the S&P 500 and its top stocks have kept rallying.  

Alternatives  

Worried investors have options, of course. The Invesco S&P 500 Equal Weight ETF (RSP) offers investors exposure to the S&P 500 without the concentration at the top, while the Vanguard Value ETF (VTV) and the Pacer U.S. Cash Cows 100 ETF (COWZ) offer investors various forms of value, which usually results in the exclusion of the stocks that dominate the S&P 500. 

There’s no guarantee that these strategies will outperform going forward—and in fact, they’re underperforming the S&P 500 quite significantly this year—but they could give some investors peace of mind.