3rd Most Popular Equity 401k Has Highest Tech Exposure Since Dot-Com Bust

The important thing is to know what you are invested in and be comfortable with it, so any further volatility doesn’t stress you out, or worse, freak you out and trigger a bout of panic selling.

That rather amusing warning comes from a Bloomberg piece dated June 14.

The gist of the article is that tech weightings in popular 401k funds are starting to rise.

That’s hardly surprising in the current environment – it’s just another “sign of the times,” if you will.

But to the extent it’s a sign of the times, it’s a worrying sign.

Because as we and plenty of other folks have noted, tech has become synonymous with growth, momentum, and perhaps most troublesome, low vol. That means tech names are getting embedded in more and more factor-based products. As we wrote on Friday evening in “Tech Turmoil: Black Swan Vol. Event Burns ETFs, Hedge Funds Dump Nasdaq Longs,” two popular low vol. ETFs that only recently pushed their tech weightings to record highs were burned badly in June as implied NDX vol. spiked relative to the VIX.

The more ubiquitous this tech exposure becomes, the more likely it is that a downdraft in those names will pose a systemic risk. This is precisely what Goldman warned about in their now infamous FAAMG note.

Well consider this from the Bloomberg piece linked above:

One popular 401(k) fund that stands out for its tech weighting is the $114.5 billion Fidelity Contrafund. In a list of the most popular equity-focused funds in 401(k) plans, by assets, Contrafund ranks third. (The financial information company Brightscope, which provided the list, says the actual amount of 401(k) assets is proprietary; it is undoubtedly a large chunk of assets.)

While some actively managed large-cap funds are denigrated as nothing more than expensive closet index funds, you can’t pin that label on Contrafund. It was 36.7 percent tech in the latest monthly data, from April, according to Morningstar. That’s as high as the monthly measure has been in two decades, and compares with the 20.1 percent in tech for the S&P 500 at the end of April (now about 22.5 percent). If the portfolio has stayed much the same since April, its tech stake would be 37.4 percent as of June 12.

tech401

“Recent volatility in popular technology stocks is a reminder to check the tech weighting in your retirement portfolio,” Bloomberg cautions.

That was on June 14.

Recall what’s happened since then in terms of tech vol…

Swan

 

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