Author Topic: Non-tech index funds  (Read 1390 times)

2sk22

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Non-tech index funds
« on: November 17, 2019, 04:36:16 PM »
I spent an idle Sunday looking through the holdings of the big index funds. I'm in the Fidelity camp so I have a lot invested in FSKAX in my IRA which is the direct equivalent of VTSAX. I also have a fair bit in S&P 500 index funds in my brokerage account.

The one thing I see in common to all of the big index funds is that the top holdings in all of them are the tech giants: Microsoft, Google, Amazon, Apple, and Facebook. In the case of FSKAX, the following companies represent 18% of the portfolio

MSFT  MICROSOFT CORP
AAPL  APPLE INC
AMZN  AMAZON.COM INC
FB  FACEBOOK INC CL A
BRK/B  BERKSHIRE HATHAWAY INC CL B
JPM  JPMORGAN CHASE & CO
GOOG  ALPHABET INC CL C
GOOGL  ALPHABET INC CL A
JNJ  JOHNSON & JOHNSON
PG  PROCTER & GAMBLE CO

To reduce the tech bias, should I also move some money into midcap index funds? Or am I overthinking this?

seattlecyclone

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Re: Non-tech index funds
« Reply #1 on: November 17, 2019, 04:58:26 PM »
Those are the biggest holdings in your funds because they're the biggest companies out there right now. You can find some sector-specific funds to decrease your overall tech exposure, but you're probably overthinking it.

Rob_bob

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Re: Non-tech index funds
« Reply #2 on: November 17, 2019, 06:21:28 PM »
I use large, mid and small cap blend growth/value ETFs over-weighting mid and small cap myself.

MaaS

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Re: Non-tech index funds
« Reply #3 on: November 17, 2019, 06:25:50 PM »
I spent an idle Sunday looking through the holdings of the big index funds. I'm in the Fidelity camp so I have a lot invested in FSKAX in my IRA which is the direct equivalent of VTSAX. I also have a fair bit in S&P 500 index funds in my brokerage account.

The one thing I see in common to all of the big index funds is that the top holdings in all of them are the tech giants: Microsoft, Google, Amazon, Apple, and Facebook. In the case of FSKAX, the following companies represent 18% of the portfolio

MSFT  MICROSOFT CORP
AAPL  APPLE INC
AMZN  AMAZON.COM INC
FB  FACEBOOK INC CL A
BRK/B  BERKSHIRE HATHAWAY INC CL B
JPM  JPMORGAN CHASE & CO
GOOG  ALPHABET INC CL C
GOOGL  ALPHABET INC CL A
JNJ  JOHNSON & JOHNSON
PG  PROCTER & GAMBLE CO

To reduce the tech bias, should I also move some money into midcap index funds? Or am I overthinking this?

Well, I think we use "tech company" too loosely. From a business model perspective, Google and FB are not tech companies. They are advertising companies. Apple is a consumer product company. Amazon is a bit of everything, but yeah I'd call Microsoft a tech company.

So no: I do not think the companies listed have a tech bias.


Telecaster

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Re: Non-tech index funds
« Reply #4 on: November 17, 2019, 06:36:25 PM »
Researching portfolio construction will lead you down a rabbit hole that never ends.  Hence the standard advice to buy a broad-based, low-cost index fund and forget it.

That said, the broad-based, low-cost index fund advice is basically a large cap strategy.  Nothing wrong with that.  But you could make a case that including more mid-caps and small-caps should provide diversification and improve returns.  So, your concerns are rational, and you may wish to increase weighting towards those market caps.   But don't be jumping towards flavor of the week.  Consistency is the key.  The standard advice works.  That's why it is the standard.

2sk22

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Re: Non-tech index funds
« Reply #5 on: November 18, 2019, 02:18:16 AM »
Thanks for your suggestions everyone. I'm normally very much a buy-and-ignore kind of investor myself. As @Telecaster suggests, I think I will slowly rebalance a little towards midcap and smallcap index over the next year or so. I have several rebalancing opportunities coming up and will take advantage of them for this purpose.

jinga nation

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Re: Non-tech index funds
« Reply #6 on: November 20, 2019, 08:20:16 AM »
The term "tech" is being misused. Even J&J and P&G used technology to create and sell products.

A good friend is an engineer at P&G. He says there a lot of innovation that happens in their processes and plants, manufacturing and food and chemical technologies are used to create consumer goods. Add the logistics and supply chain processes, communication processes for just-in-time, etc.

Some/Many investors may look at P&G and J&J and call them staples stocks or non-tech without realizing the impact of and use of technology.

BeanCounter

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Re: Non-tech index funds
« Reply #7 on: November 20, 2019, 08:38:40 AM »
My Fidelity advisor and I recently had this exact discussion. I'm pretty heavy in the FSKAX and he was recommending I move some to FLVEX to get a bit more value stocks and less tech. But when I did some of my own research I felt that the difference was only marginal.
I may still move some. 

js82

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Re: Non-tech index funds
« Reply #8 on: November 21, 2019, 07:13:07 PM »
The term "tech" is being misused. Even J&J and P&G used technology to create and sell products.

A good friend is an engineer at P&G. He says there a lot of innovation that happens in their processes and plants, manufacturing and food and chemical technologies are used to create consumer goods. Add the logistics and supply chain processes, communication processes for just-in-time, etc.

Some/Many investors may look at P&G and J&J and call them staples stocks or non-tech without realizing the impact of and use of technology.

Agree with this.  My formal "space" is chemical/materials engineering, and there's a lot that happens in the chemical/materials space at companies that aren't known as today's "tech" companies.    There are many everyday products far outside the "tech" area that are far superior to their versions from a couple decades ago, owing to technological advances in materials and/or computer design.

MustacheAndaHalf

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Re: Non-tech index funds
« Reply #9 on: November 21, 2019, 10:18:33 PM »
Vanguard has sector funds which divide the market by category.

You might be surprised to only find a couple stocks in the "Information Technology" sector of the market, represented by Vanguard Information Technology ETF (which tracks an MSCI index).
It's top 5 holdings are :  Microsoft, Apple, Visa, Intel, Mastercard.

To find Amazon, you need to look in Consumer Discretionary.
It's top 5 holdings are :  Amazon, Home Depot, McDonalds, NIKE, Starbucks.

And finally there's Vanguard Communication Services ETF (VOX) where you'll find Google and Facebook:
Top 5 holdings :  Alphabet (Google), Facebook, AT&T, Verizon, Comcast.


When tech companies were new, that was a category.  Now everyone owns a smart phone running Apple or Google's software.  People visit Facebook and shop with Amazon.  They're a part of daily life, and they have settled into different sections  of the stock market.  That's the view Vanguard and MSCI reflect in their categories.

If their categories are incorrect, there should be some event/situation that impacts only "tech" companies but leaves "non-tech" companies unscathed.  There should be a reason the distinction between "tech" and "non-tech" companies is meaningful.


shinn497

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Re: Non-tech index funds
« Reply #10 on: November 21, 2019, 11:37:04 PM »
Really what you should do is prioritize value. This has much more research backing it to have higher returns.

MoneyQuirk

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Re: Non-tech index funds
« Reply #11 on: December 01, 2019, 10:41:25 PM »
I think it's unlikely that the big players are going anywhere anytime soon. They're the big players because they're high in demand, produce good products, and do so year after year.

Not long ago I read that the average person would need to be about $70k in order to go without google for a year. Similar statements apply to the other big companies. Life as we know it is currently unimaginable without my Microsoft software on my computer. Without my iPhone that I use everyday. Without google being able to answer any question I have. Without unlimited entertainment on Netflix.

I would stay the course. You're investing well!