Most science and technology funds are passively-managed and capitalization-weighted.
All have done exceedingly well this year as the biggest of the big continue to gobble market share.
At what point do some governments may decide these monsters are too big for their pantalones and restrain them or tax them into unprofitability?
Here’s an interesting adjunct to ETF homogeneity that may fly under the political radar.
We used to think of tech stocks as those engaged in science and technology that would likely change the way we live, defend our nation, build things, transport ourselves, secure resources, and so on. Somewhere along the way the “science” part got moved into the sectors with which they deal – aerospace firms into the Industrials sector, those pursuing interesting avenues in alternative energy into the Energy Sector, new hardware for medical diagnostics into the Health Sector, etc.
What Big Tech is now is mostly productivity and entertainment companies. Just take a look at the heat map of the S&P 500 below:
If you aren’t familiar with heat maps, they provide a visual overview of their subject, in this case the stocks of the S&P 500. This one is courtesy of www.finviz.com. If you visit its site you will find it to be interactive – you can zoom in to see each component by name within finviz’s sector choices. (finviz uses 8 sectors, the Sector SPDR ETFs uses 10, another source may use another number.)
While most sources show Amazon (NASDAQ:AMZN) (correctly) as catalog and mail order in the Services Sector, let’s face it – everyone thinks of it as a tech stock (and it is earning more money these days from providing data services and, who knows, maybe soon from organic kale and tofu as well.)
While most sources show Apple (NASDAQ:AAPL) (again, correctly) as electronic equipment in the Consumer Goods Sector, there can be no doubt that most investors say it is a tech company first and foremost.
Since, Apple, Microsoft (NASDAQ:MSFT), Facebook (NASDAQ:FB) and Amazon are the 4 most widely held stocks, at about 20% of the total S&P market capitalization, it should be no shock that they, along with Google (NASDAQ:GOOG) (NASDAQ:GOOGL), are the most widely held stocks in almost every “tech” ETF.
Some may quibble that Facebook is really a communication company or an entertainment company but given the parameters in my initial paragraph no one can dispute that Facebook has changed lives, some might argue for the better, some for the worse. At any rate it is certainly a diversion for many and an obsessive diversion for some. Just look at the heat map and GOOGL, FB, MSFT, AMZN and AAPL will leap out as the highest-market-cap stocks in the US markets today.
No, Netflix (NASDAQ:NFLX) isn’t in there. It’s too small to be considered among the top 10, but Goofma (GFMAA) just didn’t roll off the tongue as easily as FANG.
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