Your exposure to tech stocks is much greater than you think – MarketWatch
If you are in an S&P 500-ish portfolio, you probably think your exposure to technology is around 25%. That’s the percentage you get when you force the constituent companies in the index into a rigid industry classification taxonomy such as the widely used Global Industry Classification Stan…….
If you are in an S&P 500-ish portfolio, you probably think your exposure to technology is around 25%. That’s the percentage you get when you force the constituent companies in the index into a rigid industry classification taxonomy such as the widely used Global Industry Classification Standard (GICS).
But in reality, it’s not 25%. It’s somewhere north of 40%.
So if you think you are broadly diversified by “holding the market”, well, you’re not. You are really into tech whole hog.
To regain some semblance of diversification and sidestep any tech bubble, you need to make adjustments to the holdings in the S&P 500-related indexes
SPX,
-1.90%.
One way is by holding sector-specific ETFs with a more toned-down holding in tech. Or by adjusting away from an index with a market-cap weighting toward one that weighs each component equally.
The five largest stocks make up over 20% of the S&P 500’s market cap, and they are all technology-related: Meta Platforms
FB,
-4.01%
(Facebook’s parent), Alphabet
GOOG,
-2.51%
(owner of Google), Microsoft
MSFT,
-1.79%,
Apple
AAPL,
+3.16%
and Amazon
AMZN,
-1.53%.
(You might think Amazon doesn’t belong, but more on that below.)
If the 500 stocks were equally weighted, these five would only be 1% of the index.
The GICS sector definitions are a blunt instrument for dealing with tech exposure. GICS puts a company into one and only one of 11 sectors, based on its main line of business. But large companies are rarely in just one business line.
Look at Amazon. GICS classifies it as a consumer discretionary stock. But anyone who follows Amazon knows it’s more than a platform for online retail. It has cloud services, media distribution and a chain of brick-and-mortar grocery stores. The difference between the 25% and the 40% weighting comes from GICS being incomplete metric.
Speaking of cloud services, look at Equinix
EQIX,
-0.95%.
GICS treats it as a real-estate company in the Specialized REITS sub-industry. But its main business is running data centers. Shouldn’t it count as part of your technology exposure?
…….
