The Danger of Index Funds Heavily Weighted in Tech

Index investors now own more tech stocks than they may realize, according to a recent article in The Wall Street Journal.

The weighting of technology stocks in the S&P 500 index, the article reports, has “climbed to 23.8% as of December 26, from 20.8% at the end of last year, according to S&P Dow Jones Indices,” and is up from 19.7% three years ago. The article says that investors are now faced with the quandary of deciding whether to reduce their tech exposure and, if so, how to go about doing it. “A pullback in the sector will have a bigger impact on the broader market, but arguably many investors in index funds have accepted that is what they signed up for when they chose to invest passively.”

The higher weighting in tech, the article reports, isn’t causing concern for investors who believe the bull has further to run, “because of how well many technology companies are performing and their continued potential for high growth.” It adds, however, that some investment advisers say they’re telling clients to reduce their exposure to the sector by selling individual stocks or moving to funds where tech has a “lesser influence”.