S&P 500 Index is Now More Like a Technology Sector Investment
By: David I. Templeton, CFA, Principal & Chief Investment Officer
Author: David I. Templeton, CFA, Principal and Portfolio Manager
A quick update on my article from a few weeks ago on index concentration. In the earlier article, Be Aware of S&P 500 Index Concentration, I touched on the percentage concentration of the Top Ten stocks within the index, but did not include commentary on sector concentration. In that regard, investors in the S&P 500 Index will want to evaluate the technology weighting in the index vis-à-vis the technology weighting in one's total portfolio. As the below table shows, the technology sector weighting in the S&P 500 Index is approximately 31.5%. If one includes technology related stocks, some moved out of the technology sector by S&P Dow Jones Indices in September 2018, the technology weighting in the index increases to 41.2%. This later weighting doesn't include the fact several other stocks were recently moved out of the technology sector, i.e., Electronic Arts (EA), Take Two (TTWO), Visa (V), Mastercard (MA) and Automatic Data Processing (ADP), just to name a few.
Certainly, the technology sector has been a winning one year to date; however, the sector return of the financial stocks has outpaced the technology sector. On a quarter to date basis the energy and industrial sectors are outpacing information technology.
As noted in my earlier blog post linked to above, concentration can have its benefits so long as returns are centered there. On the other hand, and like it appears may be occurring, rotation to other sectors can come at the expense of the prior sector that was leading performance, information technology in the recent case.
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