Many of the most popular funds in 401(k) retirement savings plans hold large slugs of mega-cap tech, and have steadily become far more concentrated in a handful of the stocks. For instance, Fidelity Contrafund—which is among the top 10 most popular funds in retirement savings plans—had 45.9% in its top 10 holdings as of December 2020. That percentage rose to 48.5% by November of 2021 and to 49.1% by the end of 2021.
As of Nov. 31, Meta was Contrafund’s largest holding, at 9.3%. When Amazon, Microsoft, Apple and Alphabet were added in, the five stocks made up more than a third of the fund, at 33.6%.
Facebook had already taken a bite out of returns at that point. At yearend 2021, Contrafund’s quarterly commentary for investors noted that “by far, the fund’s biggest individual detractor was Meta Platforms (formerly Facebook), which returned -1% the past three months.” The fund was still a fan of the stock then, noting that as of Dec. 31, it was the fund’s largest overweight “as we like the company’s ability to generate very healthy operating margins and free cash flow.”
Retirement Favorite
Another retirement plan favorite, the T. Rowe Price Blue Chip Growth Fund, has made bigger and bigger bets on mega-cap tech. Its top 10 holdings made up 57.5% of the fund as of Dec. 31, up from 49.2% as of Jan. 31, 2020. As of year-end 2021, five mega-caps made up more than 45% of the fund, up from their 34.7% weight in Jan. 31, 2020—Microsoft (11.1%), Alphabet (10.2%), Amazon (9.8%), Apple (7.8%) and Meta (6.6%).
Carl Marcel, a 28-year-old business owner in Seattle, is facing pain in both his holdings of Meta stock and his index-tracking funds. He has about 70% of his portfolio in stocks, 24% in ETFs tracking indexes like the S&P and Nasdaq and the rest in crypto. He estimates that he lost between $20,000 and $30,000 due to the Meta drop.
“I wasn't expecting that at all,” Marcel said. “In the last earnings report everything sounded positive. Usually they never disappoint us so the market is rethinking how to approach it.”
But he said he’s still optimistic about the company in the long term and plans to buy more shares, while also trying to diversify.
To reduce risk, Gokhman at AlphaTrAI suggests that investors look beyond tech-concentrated indexes when allocating their money. More international stocks or those in the value sector—which are inexpensive relative to earnings—can help diversify away from a tech concentration.
“The worst thing an investor can do is react on an emotion driven by a big move because the move had already happened,” he said. “Meta isn't going away anytime soon. But then really take a look at your asset allocation.”
This article was provided by Bloomberg News.