Diversification from s&p 500 and tech

[xyz123]

Hi, just wanted to start a thread to see if people are thinking of more diversification from s&p500 and tech. I am not a millionaire and do understand basics of diversification and long term investment. I am at least 15 years from retirement but getting little uncomfortable about exposure to these few heavyweight stocks. I mostly invest in global Passive trackers which are heavy on magnificent 7.

I can diversify by putting little more in UK funds/European funds. Additionally maybe healthcare funds but struggling to find any globalish tracker type finds for healthcare.

Any thoughts, suggestions on diversification and pointers to any such funds sincerely appreciated.

Thanks
S

[Heathwood]

Have you considered something like the Vanguard LS100? It’s another global tracker but with less weighting to the US and more towards UK and Europe.

[bitchstewie]

I'd ask yourself what makes you think you know better than the combined view of every single investor in the world?

By all means take some risk off the table but I'm not sure that being concerned about the S&P or tech automatically means you should go and buy Europe or the UK or healthcare.

[okgo]

https://youtu.be/nz0Ecl_QnXk?si=8kTunTaDtvWssi3u

This was fairly interesting on this topic.

TLDR - this isn’t anything new.

[jonathan_roberts]

The S&P is about as diversified as you can get.

[Ezra]

Instead of S&P specific, why not broaden out into a global tracker? It'll still have largish exposure to US and Mag7 tech, but it'll include Europe & UK to a lessor extent.

Something like iShares Core MSCI World ETF (IWDG). Currently it's 65% US, 6% Japan, 5% UK, 3% Canada, 3% Switzerland, etc.

[Martin315]

bhstewie said:

I'd ask yourself what makes you think you know better than the combined view of every single investor in the world?

By all means take some risk off the table but I'm not sure that being concerned about the S&P or tech automatically means you should go and buy Europe or the UK or healthcare.

Odd comment. You’ve not heard of bubbles, then?

[bitchstewie]

Martin315 said:

Odd comment. You’ve not heard of bubbles, then?

Most commentary I've seen suggests this isn't one and the companies at the top like Apple and Microsoft are solid profitable companies.

Like I said by all means take some risk off the table but the idea that you think the S&P is toppy so go buy healthcare seems strange.

If you want to diversify away from the US but still want 100% equity exposure look at a global tracker like the FTSE Global All Cap.

Holding name % of market value
Microsoft Corp. 3.7712%
Apple Inc. 3.265%
NVIDIA Corp. 2.3049%
Amazon.com Inc. 1.9528%
Facebook Inc. Class A 1.3297%
Alphabet Inc. Class A 1.0093%
Alphabet Inc. Class C 0.8602%
Eli Lilly & Co. 0.7817%
Broadcom Inc. 0.6863%
Tesla Inc. 0.6847%
JPMorgan Chase & Co. 0.6537%
Taiwan Semiconductor Manufacturing Co. Ltd. 0.644%
Berkshire Hathaway Inc. Class B 0.5745%
UnitedHealth Group Inc. 0.5605%
Visa Inc. Class A 0.5465%
Exxon Mobil Corp. 0.5181%
Mastercard Inc. Class A 0.477%
Johnson & Johnson 0.4719%
Home Depot Inc. 0.4623%
Novo Nordisk A/S Class B 0.4565%

[Simpo Two]

That still looks largely American to my untrained eyes.

Then again, if Trump is set to return as President, the markets like him.

[bitchstewie]

It is largely American it's a global index but it's not as American as investing solely in American companies

[okgo]

said:

But all operate and make much of their cash from global market.

Personally don’t see the issue, the 500 self regulates anyway to some extent in that many of them won’t be there in 5 years and delisted and many more will have joined.

[bitchstewie]

Sure but if you're concerned about the US and bubbles like xyz123 is I'd have thought that a globally weighted tracker is a more sensible option than trying to mix an S&P tracker with gut feels on geography and sectors.

[DaveA8]

Ultimately this is a simple but hard choice, invest in a tracker fund and risk that the recent outperformance will result in underperformance going forward, it is possible that the market doesn’t grow much or at all or increase risk by going after specific stocks and sectors.
The risk is one thinks they’ve found the next Apple but gets RIM.
The tolerance of each individual is different and sleeping well at night has a very important part to play, that means what level of drawdown can you comfortably cope with, that will further determine where you can go.
If I had my time again, dow, Nasdaq and S&P split evenly and switch off from the crossover fear risk.
If you are 15yrs away from retirement and factor in a possible 30% drawdown at some stage, then assuming that America stays at no.1, looking around there isn’t much competition, then that is the low cost, low stress method as per Warren Buffet

[SDoran]

It’s a valid concern and one that I know a lot of people are considering. Investing passively in a global tracker fund was a cheap and easy way to get diversified exposure. The increased concentration of MSCI World to US and to a handful of companies (as a result of very strong performance) is, certainly for some, stretching the notion of diversification.

There are two factors to consider, the exposure to individual countries and the exposure to individual companies. I’m not sure which is your prime concern. You might want to diversify one or both.

Country is relatively easy. You could buy an ex US ETF/index fund, such as MSCI World ex USA. (My work place pension platform has an L&G index fund). That can be used to reduce/remove your concentration to the US, which is circa 70% of the MSCI World.

It’s worth noting that you’re still retaining exposure to large companies. Amazingly the S&P 500 is actually one of the least concentrated developed market indices. (Ranks 11th most concentrated out to the top 12 developed markets.)

If you want diversification of size (market capitalisation), All cap indices (suggested earlier) or equal weighted indices help.

S&P 500 equal weighted index (such as Invesco SPEQ LN) will reduce that large cap bias.

All cap will have a smaller impact, but marginally reduce the large cap bias.

You could also balance/offset some of the magnificent 7/growth/tech exposure using a ‘value’ style ETF (such as IWVL LN)

Final option would be using an active manager, depending on their approach they might have a lower allocation to those top 7 names. However that could be more work for you and have a higher ongoing cost.

Personally, I would try and keep it simple. Identify what risk you are uncomfortable with and wanting to diversify, then pick one solution. Introducing a number of sector funds or individual country funds may end up confusing the issue. For example, you are concerned with US exposure in your MSCI world holding? Buy x% in S&P 500 ETF/index fund and the balance in MSCI World Ex USA ETF/index fund. You then know your US risk is reduced relative to the MSCI World Index.


Bloomberg’ Points of Return covered this last month. It’s free to view and worth a read if you’re interested/concerned.

https://www.bloomberg.com/opinion/articles/2024-02...

[Phooey]

The S&P still looks like it has the legs to me so I wouldn't want to be diverting away. If anything you should be adding on pullbacks. Once the Fed starts its rate cutting cycle (no recession) the markets will broaden out and the S&P500 will be on its way to 6000. Providing no recession and a soft or no landing it’s quite predictable the markets will get a hard on. It’s not the time to sit on the sidelines.

[richard-8zwx3]

If you want diversity away from just equities...
How about some bonds? You could even use the WTEF etf to get a 90% / 60% split on S&P(90) plus US bonds (60) leaving room in your portfolio for other diversifiers like..
Commodities Index ETF's?
Multi factor ETF's?
Hedge Fund type, e.g BH Macro?

Its Candian but picture perfect portfolios has some examples of other efficient capital strategies:

https://pictureperfectportfolios.com/

[asfault]

Can you not buy s and p equal weight if you are worried about top heavy tech?

[Phooey]

You don’t want bonds 15yrs from retirement

[thekingisdead]

Concentration in markets is nothing new. Has been going on forever - we just have a lovely phrase for them now - FAANGS and now the Mag7 (6)

As someone mentioned above - any deviation from a cap weighted global tracker is a conviction that your pound is smarter than the trillions of others that make up the market.

[simon800]

thekingisdead said:

Concentration in markets is nothing new. Has been going on forever - we just have a lovely phrase for them now - FAANGS and now the Mag7 (6)

People continually miss this.

It was FAANGs and now Netflix is nowhere to be seen - how has the market done since Netflix disappeared from the top holdings?

Then it was M7 and Tesla tanked 75% or whatever it was. How has the market done since Tesla dropped out of the top 10?

Index funds top holdings will change many times over the years, with the upside being you already hold what’s going to do best in future.