If you would like to receive notifications of new blog posts, please subscribe below:

Do You Know What’s In Your Portfolio?

Record divergencies in U.S. indices a result of disparate portfolio composition

Following up on our last blog ("A Tale of Two Markets"), today's Wall Street Journal has a front-page story regarding the diverging performance of various equity market indices so far in 2020. The article points out that the outperformance of the technology-heavy Nasdaq Composite index over the Dow Jones Industrial Average and the S&P 500 Index is the widest since 1983. The article notes that 5 stocks in the Nasdaq Composite index (Apple, Microsoft, Amazon, Alphabet and Facebook) now account for approximately 40% of the index compared to 20% for the S&P 500 index. The Dow 30 has only 2 of those 5 stocks among the 30 (Apple and Microsoft), representing about 13.5% of the index. Many other popular equity indices have even lower allocations to technology stocks in general, and those 5 stocks in particular.


I would not suggest that the outperformance of technology stocks cannot continue for some time. But, I believe it is important for investors to understand the potential risks/rewards of investing in what may seem to the novice investor as fungible index funds. For example, should one own the Nasdaq Composite ETF (exchange traded fund) such as the Fidelity NASDAQ Composite Index Track (ONEQ), one will have greater exposure to several large technology stocks when compared to the broader S&P 500 index. And even though the Dow Jones Industrial Average has only 30 stocks, investing in the Dow 30 will result in a much broader allocation across an array of industries. The Dow has significantly more generous allocation to the financial, healthcare and industrial sectors, with those 3 sectors accounting for nearly 50% of that index. This compares to about 20% for the Nasdaq Composite index.


Knowing what you own will help you avoid unwanted surprises when market dynamics change!


The views presented are those of the authors and should not be construed as personal investment advice or a solicitation to purchase or sell securities referenced in this Market Commentary . The authors or clients may own stock or sectors discussed. All economic and performance information is historical and not indicative of future results. You should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice. All information is obtained from sources believed to be reliable. However, we do not guarantee the accuracy, adequacy or completeness of any information and are not responsible for any errors or omissions or from the results obtained from the use of such information.

Caplan Capital Management, Inc., a wealth management firm is located in the heart of Middlesex County New Jersey

Main Office:

24 North Third Avenue

Suite 201

Highland Park, NJ 08904

Satellite Office:

1 University Plaza Drive

Suite 120

Hackensack, NJ 07601

Call

(732) 249-8600

Investment advice offered through Atlas Private Wealth Alliance, LLC, a Registered Investment Advisor.