It’s time for investors to move beyond Big Tech

November 27, 2020

Big Tech companies have been the hottest stocks on Wall Street all year, pre- and post-pandemic. But some experts think it’s time for a new crop of dynamic up-and-comers in fields like virtual reality and health tech to take center stage in your portfolio.

Part of the problem is that the run-up in the FAANG stock prices has been so massive that they’re taking over the entire market. Facebook, Amazon, Apple, Netflix and Google owner Alphabet — as well as Microsoft and Tesla — are now worth a combined $7.7 trillion.

The first six now make up nearly a quarter of the entire value of the S&P 500 (Tesla is still not in the index), and managers say that’s getting a bit stale for investors.

“We’ve reached an unprecedented level of concentration in the market. It’s not really passive investing if you’re putting money into an index fund and you’re only getting a handful of stocks,” said Don Townswick, director of equity strategies and portfolio management at Conning.

So investors need to look beyond the top tech stocks — and more at smaller, rapidly growing, innovative companies that can be the sector’s next leaders, one fund manager says.

“Investors still need exposure to growth, but they need to separate giant tech from more innovative tech,” said Michael Loukas, principal and CEO of TrueMark Investments, which runs the actively managed TrueShares Technology, AI & Deep Learning exchange traded fund.

Loukas is focusing on emerging leaders in dynamic industries like virtual and augmented reality, cybersecurity and health care tech, he told CNN Business in an interview. The earnings and sales growth for these smaller companies is expected to be much higher than for the larger, more mature giants of tech.

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