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Index Concentration Risk

September 04, 2019

If a financial advisor were to review a portfolio and found 20% dedicated to five stocks, her response would be, “I’m concerned that you are too concentrated in too few positions.”

Surprise! That is exactly the case with the S&P 500’s recent weightings. FAANG is made up of:

  • Facebook
  • Amazon
  • Apple
  • Netflix
  • Google/Alphabet

According to the Wall Street Journal on August 27, these stocks account for nearly 20% of the S&P 500. It is easy to see that as these stocks go, so goes the Index. Investors are becoming less enthralled with these stocks pointing too slower growth and potential government regulation. However, they still represent a large concentration to this index.

According to the WSJ article titled Tech Giants Lose Luster for Investors, mutual funds have substantially reduced their exposure to these stocks from their high in 2016.

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