Has The Tech Surge Left Your Portfolio Top Heavy?

Has The Tech Surge Left Your Portfolio Top Heavy?
Andrew Rummer

almost 3 years ago1 min

Mentioned in story

Over the past decade or so, US stocks have risen much faster than those elsewhere, tech stocks have beaten more traditional sectors, and the biggest companies have done better than the smallest. 

As money manager Richard Bernstein Advisors (RBA) points out in a recent report, this means many investors’ portfolios have become “heavily skewed” towards these three areas. 

The chart above shows how the weighting of tech-related stocks has climbed in the S&P 500 index, at the expense of the “deep cyclicals” – the energy, financial, industrial, and materials sectors – and the “defensives” in consumer staples, health care, real estate, and utilities. 

The charts below show how US stocks now make up 57% of the MSCI All-Country World Index – approaching the levels of the dot-com bubble – and how the biggest 200 stocks account for 67% of the overall US market.

US stocks have climbed compared to other markets
Source: Richard Bernstein Advisors

Even if you haven’t actively participated in these rotations, if you passively invest in stocks via broad exchange traded funds (ETFs) your portfolio will have followed anyway. And RBA warns that these trends may reverse at some point.

“History suggests that positioning for the next decade may require some proactive rebalancing,” RBA reckons. “The more elevated investor sentiment and market valuations get, the more it seems reasonable to avoid the most crowded and expensive parts of the market.” 

In other words, consider selling the past decade’s winners in order to shift money into the losers.

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