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Investors Business Daily
Investors Business Daily

Investors Lose $5 Trillion On 12 Stocks They Bet The Farm On

If you're like most S&P 500 ETF investors, you made a huge bet on 12 megacap stocks. And that's really costing you now.

Shares of the 12 stocks with the largest market weights coming into the year, including Apple, Microsoft and Meta Platforms, collectively shredded $5 trillion in market wealth this year so far, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That's a costly blow for investors following the index — who plunked a third of their portfolio in this handful of stocks.

S&P 500 investors learned this year, the hard way, the perils of ETFs that weight their holdings based on their market value. Investors overweighted nearly all the biggest losers in terms of market value. All but two of the 12 stocks dropped this year.

That's made trouble even for diversified ETFs. The market-cap weighted iShares Core S&P 500 ETF is down 21.2% this year so far. But the Invesco S&P 500 Equal Weight ETF, which puts the same amount in all 500 stocks in the S&P 500, is only down 15.6%.

"An equally weighted approach using Invesco S&P 500 Equal Weight ETF would have a significantly lower stake in all megacap companies as it treats each S&P 500 stock equally with less than 0.5% to all of them at the rebalance," said Todd Rosenbluth, head of research at VettaFi.

Huge S&P 500 Stocks Hurt The Most

Just a year ago, investors and many big-cap ETFs couldn't load up with enough megacap stocks. Microsoft alone accounted for 5.9% of the S&P 500's weight coming into the year. And it held a weight of twice that size in many technology-focused ETFs.

But this year, Microsoft shares lost roughly a third of their value. And that destroyed massive wealth when you're talking about a company valued at $2.5 trillion like Microsoft was coming into the year. Just this year, investors lost $846 billion in market value on Microsoft. That's more than what nearly all the stocks in the S&P 500 individually are worth.

The implosion is somewhat self-correcting. Following Microsoft's crash this year, the software giant's shares only hold a 5.3% weight in the S&P 500. And the 12 stocks that accounted for 33% of S&P 500 investors in January only make up 28% of it now.

But the damage is done. Meta Platforms is a dramatic example. In January, the stock was the sixth biggest in the S&P 500 at 2.2%. But following a 70% implosion in the stock — erasing $665 billion in market value — now it only accounts for 0.7% of the S&P 500.

What To Do Now

If you're investing in S&P 500 ETFs, it's important to note some of the stocks still have big weights. Apple, despite tumbling 24% this year and wiping out $765 billion in market value, is still 6.5% of the S&P 500, down from 6.8% at the start of the year.

And others, like JPMorgan Chase have gained. The financial stock now accounts for 1.2% of the S&P 500, up marginally from its 1.1% weighting at the start of the year. Investors might consider using some ETFs to round out the edges in portfolios.

For instance, energy only accounts for a small 5.6% weight of the S&P 500, despite being the sole sector out of the 11 to gain this year. You can bolster underweighted sectors with ETFs like Energy Select Sector SPDR, which is up nearly 60% this year. And Rosenbluth says equal-weighted ETFs deserve a look, too.

The Big Twelve

Stocks with the biggest weighting in the S&P 500 coming into the year

Company Symbol Year-to-date stock % ch. Sector Weight in S&P 500 at start of year
Apple -23.9% Information Technology 6.8%
Microsoft -33.0 Information Technology 5.9
Alphabet -39.4 Communication Services 4.5 -48.0 Consumer Discretionary 3.9
Tesla -48.7 Consumer Discretionary 2.5
Meta Platforms -69.6 Communication Services 2.2
Nvidia -52.9 Information Technology 1.7
Berkshire Hathaway -3.0 Financials 1.6
UnitedHealth Group 8.1 Health Care 1.1
JPMorgan Chase -18.3 Financials 1.1
Johnson & Johnson 1.3 Health Care 1.1
Home Depot -30.7 Consumer Discretionary 1.0
Sources: S&P Global Market Intelligence, IBD

Follow Matt Krantz on Twitter @mattkrantz

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