Changes are being made in two of the major stock market indexes– the S&P 500 and NASDAQ indexes. These changes will also affect the portfolio composition of mutual funds that track these indexes.
I do not think these changes will substantially affect the portfolios of anyone that owns funds tracking these indexes.
The changes will be to realign the weights in the indexes so it would somewhat reduce the significance of a few of the very large market cap companies that seem to drive these indexes’ performances.
For the last few years, I have been posting annual charts showing the top 10 securities in these two indexes as well as the Dow Jones Industrial Average to indicate how much of the larger companies’ stocks you would own if you invested in funds that track these indexes. My December 31, 2022, year-end charts showed that you would own 12% of Microsoft and Apple if you owned an S&P 500 index fund and 23% if you owned the NASDAQ 100 exchange-traded fund. If you invested equal amounts in funds that track all three of these major indexes, you would own 13% of these two companies.
My charts are presented for informational purposes, and I do not offer any buy, hold or sell recommendations. However, if you want a well-diversified portfolio and feel owning these index funds is the way to go, you might not be accomplishing your goal with such heavy weight placed on these two stocks. These two and some of the other stocks being realigned have had large increases recently, so no one owning these indexes is experiencing any discomfort. However, this might be different if these increases reversed into decreases. These changes will blunt some of the effects of large changes in the values of these two companies.
I am presenting this information to make you aware of these changes and not to suggest or influence any changes in your investments. I believe that no one should invest in anything they do not fully understand how they could make or lose money with. I feel this is information you should be aware of. If you have any concerns whatsoever, contact your financial advisor or investment manager, or ask me for an intro to our Withum Wealth Management Team to see how this might impact your portfolio.
My plan is to not present any new charts until the beginning of next year, as of December 31, 2023.
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