The Compound and Friends cover image

Sam Stovall on the Year-End Rally, Millennium Wins by Not Losing, CVS Gets an Activist

The Compound and Friends

NOTE

Beware the Weighting: ETFs and Market Concentration

Significant issues arise from the weightings of technology stocks within ETFs, as highlighted by federal securities rules that limit investment concentration. No more than 25% of fund assets can be placed in a single stock, and the total weight of companies with over 5% cannot exceed 50%. This creates a scenario where dominant players like Microsoft and Apple, each holding a 22% weight, force the cap on other valuable stocks such as Nvidia, which should have a 19% weight but is reduced to just 6%. As a result, investors may mistakenly believe they are fully invested in the tech sector when, in reality, their exposure is significantly restricted. This misalignment necessitates adjustments in the rules governing how these ETFs operate.

00:00
Transcript
Play full episode

Remember Everything You Learn from Podcasts

Save insights instantly, chat with episodes, and build lasting knowledge - all powered by AI.
App store bannerPlay store banner