Missing Out on Tech

The Nasdaq has trounced the S&P 500 this year, and the trader points to the S&P's overemphasis on drugs and financials.
Author:
Publish date:

Can the

S&P 500

play catch-up with

Nasdaq

? As most mutual fund companies are configured to look like the S&P, plus or minus a couple of weightings, I think the answer has to be a definitive no.

Right now, the S&P is simply too overweighted in drugs and financials, as a legacy of the giant mergers earlier in the decade, and that means more underperformance ahead.

When the book is written on this year, it will go something like this: Technology became the only investable theme out there, because it was the only place where sustained organic growth could be found.

Today at one of my meetings with

Jeff Berkowitz

, Jeff stumbled on something that said more about this S&P vs. NDX showdown than anything I have heard of late. Only

General Electric

(GE) - Get Report

,

Home Depot

(HD) - Get Report

,

Wal-Mart

(WMT) - Get Report

, and, on some days

American Express

(AXP) - Get Report

, are even of interest to those who run growth money. These stocks go up every day because they are the poor man's tech. They are a place to get some growth away from tech so your whole fund doesn't look like a tech fund. They are the ultimate "generalist" window dresses on top of all funds that secretly wish they were 100% tech, but can't be because there are already 100% tech funds in their fund families, and such duplication would be a business mistake.

What an amazing state of affairs that very little else in the S&P can generate the type of growth that can stack up against tech. I was reminded, as I sat through my

Yahoo!

(YHOO)

chat, that people are still hoping to buy the drillers and the drugs, to name two industries I own nothing in, as if one day those ships must come in.

I can see far into the horizon, and I don't see anything that looks like those companies headed into port.

What will change all of this? Nothing that I can see. In fact, there could be a mass migration out of the so-called high-multiple growth stocks if they fail to deliver good earnings next month. If anything, they, and not the highflying techs, are the most vulnerable because of the big mutual fund switch. Ironically, that's where the pain is coming.

And very few of the holders of these stocks believe that.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Yahoo!. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

jjcletters@thestreet.com.