NEW YORK- Rising valuations and hefty year-to-date gains for big technology stocks are pushing some investors to diversify away from the sector that has led markets for years.
Tech stocks have soared this year, and their big weighting in the S&P 500 has helped push the index to records with a 25.1 percent yearto- date gain in 2021.
Some investors are worried the valuations may have ascended into nosebleed territory.
Google-parent Alphabet, for instance, trades at a 12-month forward price-to-earnings ratio of 26.6, compared to a valuation of 21.1 for the S&P 500.
Apple Inc is valued at 26.2 forward earnings, while the information technology sector, up nearly 28 percent this year, carries a forward P/E of 26.4.
While gains in big technology stocks have boosted the S&P for more than a decade now, their heavy weighting could sink the index if tech falls out of favor. Microsoft, Apple and Amazon, Wall Street’s three most valuable companies, account for close to 15 percent of the S&P 500’s market capitalization, according to RefinitivDatastream.
Fund managers in last month’s BoFA Global Research Survey named “long tech” as the market’s most crowded trade and had collectively reduced their “overweight” positions in tech stocks to the lowest level since May. The market’s top four most crowded individual stocks are Microsoft, Apple, Alphabet and Amazon, according to a recent analysis by research firm Bernstein, incorporating factors such as institutional ownership and price momentum.
Limiting exposure to tech stocks over the last decade has tended to hurt portfolio performance over the long run, making investors wary of cutting their holdings too drastically. Still, some are looking to broaden their portfolios to reduce their exposure to the sector’s biggest names.
