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The few and the rest

The concentration on a few stocks is not only a US phenomenon, it has become a global issue. The weight on global indices, like the MSCI All Country World index, on the 7 tech stocks shown in the chart below, has reached worrisome levels. The wellbeing of #apple is almost as important as the one of #Japan, in terms of impact on the index. For that reason, any manager that measures her fund against this index cannot afford not to own these stocks without assuming a huge tracking error. And obviously, the index funds and ETFs cannot even consider drifting away from them. Another consequence is that the performance gap between tech funds, and other sector funds and the performance difference between US and non US funds is widening, until these stocks cannot keep up with its earnings expectations. The question is what sector or names will take the baton from them when that happens?

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Source: Refinitiv

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