As we highlight in our current survey (be sure to take it!) there are many ways to play US large cap Technology companies through exposure to various industry sectors. As we wrap up Q2 2019, let’s take a fast look at how these groups have done and how much they have contributed to this quarter’s S&P 500 returns.
First up, “Technology”, with a 21.5% weight in the S&P 500:
- The sector has a 36.3% weighting in just 2 stocks: Microsoft (19.6%) and Apple (16.7%).
- The group is up 5.5% for Q2 with one day left.
- Microsoft, up 13.7% in the quarter, is far outpacing Apple, up 5.2%.
Key point: Technology represents 36% of the S&P’s 3.2% gain in the quarter, a major driver of overall market returns.
Next is Consumer Discretionary, with a 10.2% weighting:
- Even though the bulk of its profits come from cloud computing services, Amazon’s weighting in this non-Tech sounding group is 23.3%. That’s more than the next 3 names – Home Depot, McDonald’s and Nike – combined.
- Amazon is up 7.7% Q2-to-date versus the sector’s 4.4% advance.
- Without Amazon, Consumer Discretionary is only up 2.7% for the quarter.
Takeaway: Amazon is the only reason Consumer Discretionary has outperformed the S&P 500 this quarter.
Finally, we have Communication Services (10.2% weighting):
- This group is concentrated in Google (22.7%) and Facebook (19.3%).
- In terms of performance, it’s been a mixed bag this quarter: +13.7% for Facebook but -8.3% for Google.
- That makes FB/GOOG’s returns largely a wash as far as their impact on the sector’s performance.
Takeaway: Communication Services has beaten the S&P 500 this quarter, up 4.2%, and unlike the other 2 sectors we’re discussing today Tech stocks played no real role in that outperformance.
The lessons from this analysis:
- Overweighting Tech stocks at the sector level is not straightforward. It is far easier to simply buy an S&P 500 index fund and single names than trying to get incremental exposure at the sector level.
- Now that Big Tech is spread across 3 sectors, performance attribution is trickier. Expect to see headlines that Consumer Discretionary stocks have outperformed this quarter, a sign that the US consumer economy remains robust. Now you know the truth…
- Technology writ large is still the primary driver of US large cap equity returns. The “Technology” sector plus Amazon represent 44% of the S&P’s gains for the quarter. Without them, the S&P is only up 1.8% in Q2.