Don’t panic—but fund managers are cutting back on tech stocks

Choosing weights.
Choosing weights.
Image: Reuters/Leonhard Foeger
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While an index might include an equal share of each company or might be weighted based on the market capitalization of each company, a mutual-fund manager attempts to beat market indexes by owning more of the winners and less of the losers than their comparable index.

Recently, fund managers have been most “overweight” in the booming tech industry. But that may be changing.

Fund managers have reduced their allocation to tech for four of the past five months, according to BofA Merrill Lynch Global Research. Their holdings are now at the lowest level since February 2017.

As we watch for signs that investors might be getting less bullish, it’s interesting to see fund managers start backing away from the best performing sector in the market.

Of course, you have to look at these changes skeptically, especially since the majority of fund managers have underperformed their benchmarks for years. But these managers say that their best performance will be when the market gets volatile as many expect may happen in 2018. The question is whether they are right in reducing their expectations for how well the tech sector will perform versus the rest of the market.

With earnings reports from the likes of Alphabet, Amazon, Apple, Facebook, and Microsoft this week, we’ll soon have an idea if the fund managers are on the right track.