Not since the tech bubble of the late 1990s has the S&P 500 been so dominated by a handful of richly valued glamour stocks—a cast that in those days starred the likes of Cisco, Lucent, and IBM. Today, the superhot names are the Fab Five: Microsoft (a stalwart in ’99 as well), Apple, Amazon, Google, and Facebook.
Starting last year, their weight in the S&P 500 jumped, then exploded in 2020 as they defied the COVID-19 crisis: The Fab Five, along with the likes of Netflix and Salesforce.com, got much more expensive while the rest of the market got a lot cheaper. So most big-cap funds load you up on the hot names that have been soaring, and go light on what’s beaten down to dirt cheap—think financials and energy. “People risk buying into indexes that are top-heavy with these high-priced stocks,” says Chris Brightman, chief investment officer at Research Affiliates, a firm that oversees strategies for $145 billion in mutual funds and ETFs. “We’ve seen these patterns before, and they usually end in tears.”