Investors can't get enough of tech stocks even as they dominate the S&P 500
As megacap tech stocks continue to fuel the rally on Wall Street, investors appear to be betting even more heavily that the big run for those market leaders will continue. Leadership in market-cap weighted indexes such as the S & P 500 are highly concentrated in just a handful of stocks. The six biggest companies account for 28% of that index by themselves, according to a Tuesday note from Strategas ETF strategist Todd Sohn. That’s without adding in the value of sliding Tesla , the seventh member of the so-called ” Magnificent Seven .” But despite the dominance of those stocks in the market index and many popular funds, leading to concerns about over concentration , investors don’t seem to be shying away. Most of those market leaders, such as Nvidia , are technology companies, and that group has been the most popular among sector fund investors over the past three months. Between the start of December and Feb. 2, tech sector funds brought in about $5.2 billion — more than double the next-closest sector — according to Strategas. In fact, cumulative flows into all other sector funds combined have been net negative over the past three months. “Flows are not a buy/sell signal, but a helpful sentiment input … investors [are] clearly optimistic on Tech’s outlook,” Sohn said. One popular fund has been the Vanguard Information Technology ETF (VGT) , which has raked in $1.1 billion over the past month, according to FactSet. Its top holdings are Apple , Microsoft and Nvidia. Not all tech sector funds will include every member of the Magnificent Seven. Some classification systems list Meta Platforms as a communications stock, for example. For investors wanting to go the other way and reduce their exposure to the Magnificent Seven, there are equal-weighted exchange-traded funds that reduce the effect of megacap stocks on a portfolio. The Invesco S & P 500 Equal Weight ETF (RSP) is the biggest and most popular of those funds, but there are other styles of funds that also happen to be equal weighted, such as the ProShares S & P 500 Dividend Aristocrats ETF (NOBL) . For those who want to avoid any extra exposure to the Magnificent Seven altogether, funds that track sectors other than tech could provide some balance to an overall portfolio. Sohn’s Strategas colleague Chris Verrone highlighted health care as an intriguing sector in a separate Tuesday note. “The sector’s relative performance continues to inflect, supported with contrarian ETF flows and an attractive long-term risk/reward profile,” Verrone said. The biggest health-care sector funds on the market include the Health Care Select SPDR Fund (XLV) and the Vanguard Health Care ETF (VHT) .
