Tech stocks have been on a roll
As we saw in the previous part of this series, tech stocks (IYW) have been on a roll. The NASDAQ Composite Index (QQQ) surged 28.0% in 2017, outperforming other major indexes. The outperformance of the tech sector means that tech stocks represent a higher percentage of broader indexes like the S&P 500 Index (SPY).
The weight of the tech sector in the S&P 500 Index increased from 20.8% at the start of 2017 to ~23.9% at the end of 2017. Tech stocks made up 19.7% of the index three years ago. Major tech stocks like Apple (AAPL), Alphabet (GOOG), Microsoft (MSFT), Facebook (FB), and Amazon (AMZN) now comprise an even higher percentage of the S&P 500 Index.
The tech rally
This trend means that if you own index funds, you may have a higher percentage of technology stocks in your portfolio. This is also relevant for ETFs that are exposed to Chinese stocks (FXI). Chinese tech giants Alibaba (BABA) and Tencent (TCEHY) have grown more than 100% in 2017. Both stocks have market caps of nearly $500 billion.
Investors who are bullish on tech stocks may not mind the excess tech weight. However, investors who are not as bullish may adjust their portfolios accordingly.