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magazineYour portfolio could be over-exposed to Microsoft, Alphabet and Amazon
There are many advantages to running a concentrated portfolio over a diversified portfolio, but sometimes investors may have too much concentration in their holdings if they aren’t aware of what is in the different funds they own.
A screening of the top holdings in some of the most popular global equity funds and investment trusts keeps throwing up the same three names again and again. Unsurprisingly, all three are US stocks and all are mega-caps which have performed well ahead of the market over the past few years.
If you’re concerned that the global funds in your portfolio all seem to move the same way at the same time, it’s probably worth seeking out the handful of managers who do things differently.
US TECHNOLOGY BIAS
Even though few global managers would class themselves as tech specialists, a remarkably high proportion of global funds have placed the same bet on three specific US technology stocks.
Top of the list by some margin, even though it’s not the biggest stock in the market, is software and cloud computing giant Microsoft.
This company has been a leader in the software sector for decades thanks to its Windows operating system and Office products, but its push into the cloud with its Azure platform has brought Microsoft much greater scale. It is also expanding its gaming business with a recent takeover offer for Activision Blizzard.
Microsoft is the largest holding for Fundsmith Equity Fund (B41YBW7), managed by Terry Smith who described the firm as having had ‘a bonanza’ during the pandemic thanks to its Teams video meeting software.
Microsoft is also the top pick for F&C Investment Trust (FCIT), the second-largest global investment trust with £5.4 billion of assets, and the biggest holding for both the Invesco Global Equity Fund (BJ04GX9) and the JPMorgan Global Equity Income Fund (B6TPLD7).
It is the second biggest holding for JPMorgan Global Growth & Income (JGGI), which now includes the assets previously managed by Scottish Investment Trust, and for the Trojan Global Equity Fund (B0ZJ5S4).
THREE DEGREES OF CONCENTRATION
The second most popular stock in the global funds we surveyed is Google and YouTube parent Alphabet, which processes close to 90% of online searches in the US and was another winner
from the pandemic thanks to a big surge in advertising revenues.
Alphabet is the number one pick for Alliance Trust (ATST) and the Trojan Global Equity Fund, and the second pick for the F&C Investment Trust and Invesco Global Equity Fund.
Blue Whale Growth Fund (BD6PG78) lists Microsoft and Alphabet among its top 10 holdings, which make up 59% of its portfolio, although somewhat coyly it doesn’t reveal their individual stock weightings or where they come in the pecking order. FE Fundinfo lists Microsoft as being its top holding as of 30 June 2021, which is interesting but somewhat out of date.
The third most popular stock with global funds is Amazon, the online marketplace which now also offers video streaming services, and which was a huge beneficiary of the pick-up in consumer spending during the pandemic.
Terry Smith recently bought shares in Amazon and Alphabet for the Fundsmith Equity Fund, after years of resisting, although as of the last update it isn’t clear whether either stock features in the top 10 holdings of Fundsmith Equity.
However, several other popular funds own all three stocks in their top 10 holdings, including the £3.8 billion Rathbone Global Opportunities (B7FQLN1), while Allianz Technology Trust (ATT) and Polar Capital Technology Trust (PCT) both have heavy weightings in at least two of the three stocks.
If you are an investor who owns ETFs (exchange-traded funds) which track global indices such as the FTSE All World or MSCI World, or a US index such as S&P 500, you automatically have a large exposure to all three stocks as well.
A DIFFERENT APPROACH
To perform differently from the crowd, you must invest differently. The following three names offer an alternative to the other funds and trust discussed in this article.
Bankers Investment Trust (BNKR) holds Microsoft as its top pick but the portfolio as a whole is tilted towards consumer, industrial and financial stocks such as Estee Lauder, Home Depot, American Express and Union Pacific.
Brunner Investment Trust (BUT) also holds Microsoft as its largest position, but the rest of its portfolio is focused on consumer, healthcare and financial stocks such as Adidas, Abbvie, Munich Re, Partners Group, Roche and UnitedHealth.
The Lindsell Train Global Equity Fund (B644PGO) is even more diversified with no US tech stocks in its top five or even its top 10 holdings.
Instead, the portfolio is heavily skewed towards consumer stocks such as Diageo (DGE), Heineken, PepsiCo and Unilever (ULVR), with a smattering of media firms including RELX (REN) and Walt Disney, and financial stocks such as London Stock Exchange (LSEG).
Disclaimer: The author (Ian Conway) owns shares in Bankers Investment Trust. The editor (Daniel Coatsworth) has a personal investment in Fundsmith Equity Fund.
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