As tech heavyweights retreat, it has exposed the risk of relying on the performance of a few large companies to maintain portfolio returns.
“The FAANG stocks are a considerable portion of the return this year, yet again,” Matt Schreiber, president and chief investment strategist at WBI Investments, told Bloomberg. “If they start to perform poorly, it’s possible the market could lose some of its positive directionality it has had because it has been the leadership in the return.”
FAANG stocks, or Facebook (NasdaqGS: FB), Apple (NadaqGS: AAPL), Amazon (NasdaqGS: AMZN), Netflix (NasdaqGS: NFLX) and Google (NasdaqGS: GOOG), make up about 37.2% of QQQ’s underlying portfolio.
Alternatively, investors who are wary of potential risk with traditional market capitalization-weighted funds may consider alternatively weighted strategies that don’t lean toward the largest or relatively pricier companies in the market. For instance, the Guggenheim S&P 500 Equal Weight Technology ETF (NYSEARCA: RYT) tracks the S&P 500 Equal Weight Information Technology Index, which equally weights tech components taken from the S&P 500 so holdings skew more toward mid-sized companies.
For more information on the ETF market, visit our ETF performance reports category.