Derisking against large tech. stocks

tigerspill

Hi,

Just wondering really here.
My equity investments are generally in Global index funds.  These are obviously very heavy in US and in particular tech stocks.
If I wanted to reduce my exposure to say, the top 10 tech stocks, are there funds that attempt to achieve this?  Or would I have to look at a set of funds and have a smaller %age in this type of stocks.

masonic

There are various approaches that would allow you to do this... 1) Track an "equal weight" US index, 2) Tilt into a value fund, 3) Reduce overall US exposure by buying the other regions, 4) extend your US holdings into mid-caps and small-caps, 5) Reduce overall equities (given the likely contagion and impact worldwide).

m_c_s

One common option is to use equal weight type investments:
Invesco have produced a reasonably balanced summary even though they have a product to sell:
https://www.invesco.com/uk/en/insights/equal-weight-common-sense-approach.html

Invesco have their own ETF which follows the MSCI World Equal Weight Index:
https://www.invesco.com/uk/en/financial-products/etfs/invesco-msci-world-equal-weight-ucits-etf-acc.html

This  MSCI World Equal Weight Index takes exposure to US down to 40% and ofcourse reduces top 10 tech stocks to just 0.1% exposure each.

The obvious potential issues to equal weight are:
- potential underperformance in mega-cap-driven markets but if the aim is to diversify away from these then that must be expected
- a default bias towards smaller, mid-tier companies and away from dominant large-caps, potentially exposing investors to volatility (or risks) they didn't intend to take

There are several S&P 500 equal weight funds if the focus is on US only companies and a few EU focused funds.

Linton

There arent any global index funds that specifically reduce the %mag 7 without affecting the other investments.

However the iShares Edge MSCI World Value Factor UCITS ETF may be of interest.  "Value Factor" means those shares whose price is justified by current profits rather than future hopes .  The fund only invests in large companies in the developed world and there are no Mag 7 holdings in the top 10.  So they must be at less than 1.2% each.   Once the Mag 7 and similar are removed the US is reduced to 42 %  of the total rather than the 65% or so for a standard global index fund. Depending on your point of view you may consider this to be good or bad.

Over the past year the value factor fund had about half the returns of the full index but over 5 years it slightly out-performed it.  Make of that what you will.

If you didnt want such a drastic change you could always hold a 50/50 split with the full Index fund.

Another option if you did not want an ETF is the L&G Developed World Value Factor  index fund which seems to have been launched about 6 months ago.  As it's so new I have not been able to find out much about it, though from what I have seen it may be somewhat less "fierce" than the iShares ETF.

InvesterJones

Or just wait - market cap weighted index trackers will only reflect what people are willing to pay, so since many others are also thinking about reducing exposure, your global tracker will track this if that's the consensus view.

Millyonare

If US stocks correct -20% in 2026, the best place to invest will be good old cash in a highstreet bank account at +4%.

tigerspill

Thank you folks.  Lots to look into here.

GazzaBloom

Or, stop being triggered by the media, in particular social media about the “Mag 7”.

Tune out the news and stay invested in a global tracker and, as @InvesterJones says, just let the index do it's thing over time, in 10-15 years it could well prove to have been the smartest decision, ie change nothing.

The point of investing in a global tracker is acknowledging that you do not know what the winning companies, sectors, regions or the winning times are, but, that over time you are happy to invest your money in global businesses and take the global aggregate gains/falls as global capitalism ebbs and flows, at very low costs and fees.

Anything else, requires clairvoyance, market knowledge, timing or luck. There are many armchair soothsayers who will claim to have some or all of these attributes.

In 1989 the Top 10 companies were dominated by Japanese banks and industrials with mostly onshore revenues, in 2025 it's US Tech giants that truly operate globally, who knows who it will be in 2045?

Hold a global tracker and you will get those winners as they rise. 

eskbanker

Millyonare said:

If US stocks correct -20% in 2026, the best place to invest will be good old cash in a highstreet bank account at +4%.

Only if you were choosing to measure performance over that one year period, which is rarely a sensible approach to investing!