Fund Junkie: Weigh Your Tech Exposure and Consider a Diet
David Gaffen: Tech Stocks Not Cheap Yet
Justin Lahart: Margin Debt at Worrisome Levels
Jim Cramer: Get Liquid
Brett Fromson: Get Ready For Fourth-Quarter Pre-Announcements
Technical View: A Lesson in Tops for a Market Ready to Bottom
Metrics View: A Dozen Stocks Still Defy Gravity
Taskmaster Chat: Take a Defensive Posture
Fund Junkie: Climate Is Changing for Net Bellwether Stocks
After you force down that last, totally unnecessary bite of pumpkin pie and start taking stock of the past year, take 15 minutes to look at your portfolio because your belly probably isn't the only thing that's about to explode.
Tech stocks and other growth-oriented investments are probably overrepresented in your funds, thanks to a record-setting run from 1995 to early 2000. If that's the case, your portfolio probably has been on an involuntary crash diet lately as slowing tech spending and economic growth have shellacked these stocks.
Whether you think technology will recover in the short term, the long term or maybe never, now's a good time to consider rebalancing your portfolio, which could be out of whack.
"I think a lot of people, particularly those who started investing over the last five years, probably have a huge tech bet. If they want that, fine, but a lot of them might not know they have that bet," says senior
analyst Scott Cooley.
It's understandable to have a big tech bet because the sector has been on a stunning tear. The average tech fund posted positive returns each year in the 1990s, capping the run with a jaw-dropping 135% return last year. No other stock-fund category came close to matching that winning streak. But the category has posted an average return of negative 23% this year. Barring a late, stunning rally, this will be the
first calendar year since 1985 in which the average tech fund winds up in the red.
Tech Funds Crash
Source: Morningstar. *Annualized. Performance through Nov. 20.
S&P 500 index, which has been pulled along by tech stocks' updraft for the past five years, is down more than 8% this year after posting 20% or better returns for a
record five straight years from 1995 to 1999.
A Bonny Streak Ends
Source: Morningstar and Baseline. Performance through Nov. 20.
Given those returns it's not surprising that investors
stuffed billions of dollars into tech funds and tech-heavy growth funds or that fund companies started rolling out a
record number of tech funds. After all, $10,000 invested in the average tech fund 10 years ago would've been worth more than $160,000 at the end of October, according to Morningstar.
It's also not surprising that "diversified" growth managers went on a tech-stock buying spree to keep pace with their high-flying peers. Consider that at the end of October the average growth fund had more than 40% of its assets in tech stocks, compared with the S&P 500's 27% weighting.
So even if you didn't rush out and buy a tech fund and even if you didn't buy any new funds over the past few years, you might be holding a surprisingly risky portfolio.
To find out exactly where you are, check out Morningstar's handy
Instant X-Ray tool. Just make a list of your funds' ticker symbols and your current balances. Enter them in the fields provided -- there's room for more than 20 funds -- and click "Instant X-Ray."
The next page crunches all those numbers and tells you how your portfolio is spread among industry sectors, countries, growth/value stocks, small-caps, mid-caps and big-caps.
If you click on Diagnostics, you'll even get a quick-and-dirty assessment of what the numbers mean, bottom-lining whether or not your portfolio is aggressive in relation to the overall market and highlighting where you are making outsized bets.
Let's look at a hypothetical portfolio with $1,000 invested in the five top-selling funds from last year and the five top-sellers from the first nine months of this year.
The list is essentially a smattering of high-octane funds that also includes the
Vanguard 500 Index, which tracks the S&P 500 index. This portfolio would have more than 60% of its assets in tech and telecommunications stocks -- more than double the S&P 500's weightings.
Below are the sector weightings for the S&P 500 index.
Any time the sector weightings in your portfolio diverge from those of the broader market, you're making a bet. If you're like many investors, you're probably betting big on tech and telecom stocks (telecom stocks fall in Morningstar's "services" sector). If you're not comfortable with a big bet on these tumbling stocks, you should shop for value funds, which focus on underpriced or unloved stocks that typically lead to lower-tech portfolios. The key is to look not just for value funds that beat their average peers, but those that have a below-average tech weighting.
Big Screen did just that on Nov. 4. And check out another
value-fund Big Screen from Sept. 2. The Daily Screen also fished for
solid large-cap value funds on Nov. 10.
If you've been an unabashed tech bull all along, you might get a wake-up call of a different sort when you X-ray your portfolio. You might have
tech in your portfolio due to flagging performance since tech stocks peaked in March.
"If you liked where your tech weighting was in March, it's lower now," says Cooley. "If you're a tech bull you might actually have less than you want in the sector now through this year's bad performance."
In that case, check out the tech funds we found in our most recent
Daily Screen. These funds topped their peers over the past one- and three-year periods. You also might just consider the
Nasdaq 100 Trust Shares
, which give you access to all the tech biggies in one tidy, cheap, exchange-traded bundle.
If you've decided to rebalance your portfolio, it's always best to do it in a tax-deferred account like an IRA or a 401(k). That way you don't immediately realize taxable capital gains when you sell shares of long-term holdings that are in the black. In a taxable account, try to rebalance with new money to avoid selling shares and triggering a tax bill. If that's not possible, try to balance realized gains with losses as you sell shares.
No matter what type of investor you are, now is a great time to figure out where you're invested. Who knows? You might be perfectly comfortable with what you own -- just make sure that it's not the overdose of turkey talking.
Ian McDonald's Fund Junkie runs every Monday and Wednesday, as well as occasional dispatches. Also, check out the weekly 10 Questions, which runs under the Fund Junkie banner on Monday mornings. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
email@example.com, but he cannot give specific financial advice.