Does it bother you that FAANGs make up over 10% of the S&P 500??

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underwrite

Recycles dryer sheets
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Is index investing the same as it’s always been? Buy a low cost index fund and don’t market time.

I’ve agreed with that for years, but have the indexes changed?

Should I (we) rely on indexes that are heavily weighted toward tech mega caps?

There’s always risk, but I don’t like the game right now. I see government intervention due to anti-competitive behaviour and/or privacy issues and normalizing interest rates as huge headwinds for the FAANGs. These companies are priced for protection.

Should I just shut up and be a boglehead?

What are you doing to de-FAANG?...if anything. I’ve made some changes, but curious to get your thoughts.
 
Yes, it does bother me. I don’t know what to do about it but it does bother me to be so heavily weighted in so few stocks. Especially ones I don’t particularly care for as companies outside of their financial performance.
 
I am 5% Nasdaq exposure and 15% SP500 exposure. Not invested in individual FAANG stocks. Leaving it for now.
Could be issues coming, but it doesn't appear to be a year 2000 type scenario.
 
No, It doesn't bother me really. For one thing, I only have 20% of my investable assets in the index. Another thing, it used to be , not too long ago, that the SP500 was 40% tech weighted. Well, that's what I remember it being, I could be mistaken.



But I have not noticed the SP500 acting any differently than it has in the past in regards to the Nasdaq or Dow in the daily swings. To be honest though, how many funds beat the index each year? It's not easy to beat. I have only 20% in the index because I need income and the SP500 doesn't provide enough of that. My other 20% in stocks is spread out over various funds.
 
I could care less.
 
Does it bother you that FAANGs make up over 10% of the S&P 500??Not particularly. That's roughly 2% of each company. It's even a lower % of Total Market, so that would improve the situation a bit.

I suppose the S&P has been over weighted in Oil, Steel, Pharma, Finance, etc in the past. Did those end badly? Is this so much different?
underwrite said:
...

What are you doing to de-FAANG?...if anything. I’ve made some changes, but curious to get your thoughts.
Click to expand...

What changes did you make? I saw some notes on FAANG index ETF - could you short that?

-ERD50
 
I don’t think the index is likely to do anything close to what it did during the last 9 years. It was carried by the FANGs. Like the OP suggests the privacy and taxation headwinds faced are somewhat early in the market’s consciousness. I actually think it is more than a headwind, it could very well be a brick wall! If you sit down and calmly think about it, there’s about 1.5 trillion in market cap for essentially what? Just ads!

I exclude Apple which is in a different place from the FANGs.
 
My portfolio is gently weighted towards small and mid-cap value funds. I think you raise a good point, OP. Perhaps I should weight it more heavily in that direction.
 
I’ve noticed that there has really been a stealth correction for most of the S&P that has been masked by the outperformance of stocks like Amazon, Netflix, Apple, Facebook, and Google.

While the index is pretty flat for the year, most consumer staples stocks have had a pretty serious correction. I’m starting to nibble at some of these companies now that they have what I consider rational pricing. Stuff like BUD, GIS, TAP, PG, KHC, KMB, CPB. I haven’t bought a lot of any of them, since they all have warts, but I’d rather own them than something with an irrational valuation like Netflix.

A similar collapse of breadth happened in 1999/2000 and back with the “Nifty Fifty” in the 70s. It didn’t turn out well investment-wise for most of the market leaders in those cases.
 
I had to google FAANG just to find out what it was.
 
ERD50 said:
Does it bother you that FAANGs make up over 10% of the S&P 500??Not particularly. That's roughly 2% of each company. It's even a lower % of Total Market, so that would improve the situation a bit.

I suppose the S&P has been over weighted in Oil, Steel, Pharma, Finance, etc in the past. Did those end badly? Is this so much different?


What changes did you make? I saw some notes on FAANG index ETF - could you short that?

-ERD50
Click to expand...

Well it did end badly - for a while, but we survived. Oil and Finance being the recent crashes/corrections.
 
ERD50 said:
I suppose the S&P has been over weighted in Oil, Steel, Pharma, Finance, etc in the past. Did those end badly? Is this so much different?
Click to expand...

This is where I'm at - since the S&P 500 is market-cap weighted, it's always been heavy on a few big players. Is now different from the past in any way other than specifically which companies are at the top?
 
underwrite said:
Is index investing the same as it’s always been? Buy a low cost index fund and don’t market time.
Click to expand...

I don't see why not. There are always reasons to think it's not the same, but statistics show the vast majority of investors do poorly over the long run trying to outsmart the indexes.
 
DEC-1982 said:
I don't see why not. There are always reasons to think it's not the same, but statistics show the vast majority of investors do poorly over the long run trying to outsmart the indexes.
Click to expand...

there is a rare smattering of equal weight ETFs out there

i have an eye on one , but have not bought into it yet .

maybe that would be a compromise to the nervous

i am looking at my target as a possible insurance strategy if the market goes into a strong downturn ( try NOT to guess which stocks will recover first , let the market decide )
 
UnrealizedPotential said:
No, It doesn't bother me really. For one thing, I only have 20% of my investable assets in the index. Another thing, it used to be , not too long ago, that the SP500 was 40% tech weighted. Well, that's what I remember it being, I could be mistaken.



But I have not noticed the SP500 acting any differently than it has in the past in regards to the Nasdaq or Dow in the daily swings. To be honest though, how many funds beat the index each year? It's not easy to beat. I have only 20% in the index because I need income and the SP500 doesn't provide enough of that. My other 20% in stocks is spread out over various funds.
Click to expand...
Sounds like your need for income has you pretty well diversified.
 
ERD50 said:
Does it bother you that FAANGs make up over 10% of the S&P 500??Not particularly. That's roughly 2% of each company. It's even a lower % of Total Market, so that would improve the situation a bit.

I suppose the S&P has been over weighted in Oil, Steel, Pharma, Finance, etc in the past. Did those end badly? Is this so much different?


What changes did you make? I saw some notes on FAANG index ETF - could you short that?

-ERD50
Click to expand...
Interesting idea on shorting the FAANG index. Not sure that is my style.

So far, I moved the bulk of my 401k money from the growth index and total stock market index to the value index. That eliminated most of my FAANG exposure.

Outside of my 401k, I have sold most equities as I think the market is generally overvalued.
 
cooch96 said:
My portfolio is gently weighted towards small and mid-cap value funds. I think you raise a good point, OP. Perhaps I should weight it more heavily in that direction.
Click to expand...
I have done similar. I’ve also put more money in a value index which appears to have no FAANG exposure.
 
Hamlet said:
I’ve noticed that there has really been a stealth correction for most of the S&P that has been masked by the outperformance of stocks like Amazon, Netflix, Apple, Facebook, and Google.

While the index is pretty flat for the year, most consumer staples stocks have had a pretty serious correction. I’m starting to nibble at some of these companies now that they have what I consider rational pricing. Stuff like BUD, GIS, TAP, PG, KHC, KMB, CPB. I haven’t bought a lot of any of them, since they all have warts, but I’d rather own them than something with an irrational valuation like Netflix.

A similar collapse of breadth happened in 1999/2000 and back with the “Nifty Fifty” in the 70s. It didn’t turn out well investment-wise for most of the market leaders in those cases.
Click to expand...
Great info. I’ll check some of those stocks out.
 
I have always thought about equal weight indexes. I believe they compare favorably to the cap weighted ones.
 
Yes and no. I own some and have refused to own others. Concentrations are a natural consequence of indexing, as they tend to reinforce momentum. The market has always been this way, indexing accentuates it. Sometime in the future, the next story will rotate in, winners will be selected, and momentum will rule again. The turning points are only visible in hindsight.
 
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