Some advisors see concentration risk as a problem and are looking beyond large caps as interest rates start to come down.The Magnificent Seven stocks have had a magnificent run that may be running out of steam, with many investors seeing interest rate cuts ahead as the U.S. economy slows.
After all, mega-cap tech names have generated about 60 per cent of the S&P 500′s returns since the start of 2023,The ongoing risk is increasingly hard to ignore for many advisors, given the S&P 500′s top six holdings make up around 30 per cent of the index’s US$47-trillion market cap as of late August.
Those investors include Canadian advisors, who know all too well about overconcentration risk, he adds. “This is so intuitive because, as Canadians, we’ve lived through the likes of Nortel .” launched on the Toronto Stock Exchange in July. The fund caps all stocks on the S&P 500 at 3 per cent of the index’s cap weight. It then redistributes the weighting in a given stock above that threshold among the other stocks across the index in proportion to their weightings, Mr. Yang explains.
In contrast, the S&P MidCap 400 index’s largest sector exposure is industrials at about 22 per cent, while technology makes up only about 9 per cent.
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