Index-ish fund that lacks FAANG?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
AerialWombat
Posts: 184
Joined: Tue May 29, 2018 1:07 pm

Index-ish fund that lacks FAANG?

Post by AerialWombat » Fri Jul 20, 2018 1:32 pm

Does there exist such a beast? A fund that tracks a broad index, but purposefully omits the current high-flyers of the time?

Does this perhaps go by a different name that I just don't know about, and so I'm searching for the wrong name, thus unable to find it?

If I take a totally comprehensive view of my net worth as one big portfolio, which many Bogleheads advocate, I realize that almost 1/3 of my net worth is locked up in my own small business interests which are very heavily dependent upon FAANG tech stacks, user bases, and ad platforms (minus Netflix). This realization made me cringe all of a sudden, and now I have anxiety over also having them in my investment portfolio.

Thank you!

Yankuba
Posts: 74
Joined: Wed Dec 07, 2016 10:45 am

Re: Index-ish fund that lacks FAANG?

Post by Yankuba » Fri Jul 20, 2018 1:37 pm

A small cap index fund will omit FAANG. A large cap value index fund (VIVAX) will omit FAANG (but it has Microsoft).

Whakamole
Posts: 754
Joined: Wed Jan 13, 2016 9:59 pm

Re: Index-ish fund that lacks FAANG?

Post by Whakamole » Fri Jul 20, 2018 1:38 pm

SPXT omits some components (still has Amazon and Netflix since they aren't considered technology/telecommunications companies.)

alex_686
Posts: 3840
Joined: Mon Feb 09, 2015 2:39 pm

Re: Index-ish fund that lacks FAANG?

Post by alex_686 » Fri Jul 20, 2018 1:44 pm

AerialWombat wrote:
Fri Jul 20, 2018 1:32 pm
Does there exist such a beast? A fund that tracks a broad index, but purposefully omits the current high-flyers of the time?
No. And why would you want one? There is a discount between theory and objective metrics on one hand, and whatever you are trying to do on the other.

So, you really don't want to do indexing. What do you want to do? I might suggest that you look at factor funds such as low volatility. The other 3 major factors are value, size, and momentum. Some will included FAANG, others don't. Momentum is stuffed with high fliers, value is stuffed with volatility, but low volatility is not.

asif408
Posts: 1444
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Index-ish fund that lacks FAANG?

Post by asif408 » Fri Jul 20, 2018 1:50 pm

Not sure about omits, but the fundamental indexes in the US underweight by market capitalization the FANG stocks. And if you buy a foreign developed ex-US or emerging markets fundamental index, it doesn't own any of the FANGs and holds less than 1% in the FANG equivalents overseas (e.g., Alibaba, Tencent). Those funds are broad markets, and own most of the investable markets outside the US.

Of course those funds have underperformed their market cap equivalents since 2010, and that's not even considering how poorly developed ex-US and emerging markets stocks have done relative to the US since then.

Whakamole
Posts: 754
Joined: Wed Jan 13, 2016 9:59 pm

Re: Index-ish fund that lacks FAANG?

Post by Whakamole » Fri Jul 20, 2018 1:56 pm

alex_686 wrote:
Fri Jul 20, 2018 1:44 pm
And why would you want one?
If you are a worker at a tech company like a FAANG, you already have considerable wealth tied up in the health of the tech sector - not just your salary and whatever stock/options you have, but also your ability to get a job should the sector have problems. Perhaps real estate as well should you own property in SF/Seattle/Austin.

That goes for people in many sectors, but it can hit techies a bit harder due to how many tech companies use stock as a significant portion of salary, plus the already high tech company weighting in the S&P 500. A recession in the tech sector would hit tech workers harder than most.

There were a few ugly years for many techies after the dotcom bust.

livesoft
Posts: 62703
Joined: Thu Mar 01, 2007 8:00 pm

Re: Index-ish fund that lacks FAANG?

Post by livesoft » Fri Jul 20, 2018 2:05 pm

One can always sell short an ETF that is composed of stocks one doesn't want. Or maybe an option.

Here's a list of ETFs that might be of interest to folks:

http://etfdb.com/themes/faang-etfs/
Wiki This signature message sponsored by sscritic: Learn to fish.

MnD
Posts: 3730
Joined: Mon Jan 14, 2008 12:41 pm

Re: Index-ish fund that lacks FAANG?

Post by MnD » Fri Jul 20, 2018 2:30 pm

Buy the total market and short the individual FAANG stocks in proportion to their weight in total market.
Net return will track your hypothetical total market minus FAANG index fund.
Have fun with that.

wolf359
Posts: 1383
Joined: Sun Mar 15, 2015 8:47 am

Re: Index-ish fund that lacks FAANG?

Post by wolf359 » Fri Jul 20, 2018 2:43 pm

You could also buy an equal weighted index. While it will include FAANG, they'll be equally weighted with everything else, reducing the out-sized representation of those stocks.

The fact that most of the market capitalization is in a few stocks is normal. What is new is that they are specifically the companies that make up the acronym FAANG. Equal weighted index is an attempt to reduce that problem, regardless of which specific stocks are the heavyweights at any given time.

mega317
Posts: 2554
Joined: Tue Apr 19, 2016 10:55 am

Re: Index-ish fund that lacks FAANG?

Post by mega317 » Fri Jul 20, 2018 2:47 pm

Easier than any of the strategies suggested in this thread would be just to stop caring. Let's say you're young with an 80/20 allocation and 30% of stocks are international. FAANG is like ~10% of the total market which, if you are calling your business 1/3, is less than 5% of your net worth.

If you're feeling anxiety about your investment portfolio I would suggest increasing your bond proportion instead.

User avatar
nisiprius
Advisory Board
Posts: 36641
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Index-ish fund that lacks FAANG?

Post by nisiprius » Fri Jul 20, 2018 2:51 pm

1) Mutual funds and ETFs are cake mixes. It's not reasonable to expect that you will find one that's an exact match to your personal tastes.

If you're really serious, and you don't want to deal with shorting ETFs, then you could consider investing in 10 of the 11 Vanguard sector ETFs, in proportion to its cap weight in the S&P 500 and omit the Vanguard Information Technology ETF.

2) You are a sample size of one. Your personal career is not going to have such a close correlation with your industry that you can do any accurate fine-tuning.

Now, on the one hand, the issue of "correlation with your industry" is a valid reason why a specific person I know, who worked for GE, really shouldn't have put half of his 401(k) savings into GE stock.

But even though his portfolio took a terrible hit, it was an illustration of "idiosyncratic risks of single stocks," not career correlation with portfolio.His income and career were uninterrupted. He worked in one of GE's businesses, which GE sold off... and he just kept working for the company it was sold to.

In any case, we are talking about half of his retirement savings portfolio, and not just in the same industry he worked in, but literally the very same company he worked for.

On the other hand, even if you literally work for Apple, then only 4% of your US stocks are invested in the company you work for--not 50%.

And "US stocks" shouldn't be 100% of your retirement savings portfolio.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
Earl Lemongrab
Posts: 5417
Joined: Tue Jun 10, 2014 1:14 am

Re: Index-ish fund that lacks FAANG?

Post by Earl Lemongrab » Fri Jul 20, 2018 2:57 pm

Large-cap value will eliminate the main growth stocks.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

wolf359
Posts: 1383
Joined: Sun Mar 15, 2015 8:47 am

Re: Index-ish fund that lacks FAANG?

Post by wolf359 » Fri Jul 20, 2018 2:58 pm

mega317 wrote:
Fri Jul 20, 2018 2:47 pm
Easier than any of the strategies suggested in this thread would be just to stop caring. Let's say you're young with an 80/20 allocation and 30% of stocks are international. FAANG is like ~10% of the total market which, if you are calling your business 1/3, is less than 5% of your net worth.

If you're feeling anxiety about your investment portfolio I would suggest increasing your bond proportion instead.
+1

This is my actual strategy. I don't care about the market concentration. It's normal. (See: Pareto Principle)

snarlyjack
Posts: 780
Joined: Fri Aug 28, 2015 12:44 pm
Location: Montana

Re: Index-ish fund that lacks FAANG?

Post by snarlyjack » Fri Jul 20, 2018 3:04 pm

AerialWombat,

Check out large Cap. Value Index's, Medium Cap.
Value Index's & Small Cap. Value Index's.
VHDYX
VMVAX
VSIAX
Excellent long term combination. All together they have
about 1500 value stocks, with low ER'S & all index funds.

MotoTrojan
Posts: 2270
Joined: Wed Feb 01, 2017 8:39 pm

Re: Index-ish fund that lacks FAANG?

Post by MotoTrojan » Fri Jul 20, 2018 5:09 pm

livesoft wrote:
Fri Jul 20, 2018 2:05 pm
One can always sell short an ETF that is composed of stocks one doesn't want. Or maybe an option.

Here's a list of ETFs that might be of interest to folks:

http://etfdb.com/themes/faang-etfs/
I've never really understood the concept of short selling one asset/class in order to boost exposure to the rest. If I believe the value factor will give a 1% premium over a growth index, but both will have a positive return, I am only hurting myself by buying a value index and shorting a growth index, no?

livesoft
Posts: 62703
Joined: Thu Mar 01, 2007 8:00 pm

Re: Index-ish fund that lacks FAANG?

Post by livesoft » Fri Jul 20, 2018 5:23 pm

^I would not do what the OP wants to do, nor would I short an ETF of some FAANG stocks nor short some individual stocks.

Indeed, I would even overweight things by owning some MTUM which I consider large-cap growth.

Full disclosure: I own some MTUM. :twisted:
Wiki This signature message sponsored by sscritic: Learn to fish.

fennewaldaj
Posts: 202
Joined: Sun Oct 22, 2017 11:30 pm

Re: Index-ish fund that lacks FAANG?

Post by fennewaldaj » Fri Jul 20, 2018 5:45 pm

I would think your best bet if you really wan to do this is either equal weight s+p 500 index (RSP) plus a completion index or approximating total market with a large value fund plus mid and small cap blend. You end up underweight in some non FAANG large growth stocks but it would largely achieve what you are looking for.

Theoretical
Posts: 1422
Joined: Tue Aug 19, 2014 10:09 pm

Re: Index-ish fund that lacks FAANG?

Post by Theoretical » Fri Jul 20, 2018 6:19 pm

The OP is trying to hedge exposure, not concentrate it even more. Put another way, this is someone with a massive exposure to 4 stocks (regardless of what the raw portfolio says) and the tech sector more broadly. That’s why shorting is potentially on the table and is not an inherently speculative move like traditional shorting.

MnD
Posts: 3730
Joined: Mon Jan 14, 2008 12:41 pm

Re: Index-ish fund that lacks FAANG?

Post by MnD » Fri Jul 20, 2018 7:27 pm

nisiprius wrote:
Fri Jul 20, 2018 2:51 pm
If you're really serious, and you don't want to deal with shorting ETFs, then you could consider investing in 10 of the 11 Vanguard sector ETFs, in proportion to its cap weight in the S&P 500 and omit the Vanguard Information Technology ETF.
There's an ETF for that! :mrgreen:
But you'll still have Amazon.
http://www.proshares.com/funds/spxt.html

ProShares S&P 500 Ex-Technology ETF seeks investment results, before fees and expenses, that track the performance of the S&P 500 Ex-Information Technology & Telecommunication Services Index.
Focuses on S&P 500® companies, except those in the information technology and telecommunication services sectors.
Offers investors a way to reduce or even eliminate exposure to a sector they believe may underperform.
Can serve as a risk management tool for investors who have a large exposure to technology and telecommunication services.

User avatar
nisiprius
Advisory Board
Posts: 36641
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Index-ish fund that lacks FAANG?

Post by nisiprius » Fri Jul 20, 2018 8:08 pm

MnD wrote:
Fri Jul 20, 2018 7:27 pm
nisiprius wrote:
Fri Jul 20, 2018 2:51 pm
If you're really serious, and you don't want to deal with shorting ETFs, then you could consider investing in 10 of the 11 Vanguard sector ETFs, in proportion to its cap weight in the S&P 500 and omit the Vanguard Information Technology ETF.
There's an ETF for that! :mrgreen:
But you'll still have Amazon.
http://www.proshares.com/funds/spxt.html

ProShares S&P 500 Ex-Technology ETF seeks investment results, before fees and expenses, that track the performance of the S&P 500 Ex-Information Technology & Telecommunication Services Index.
Focuses on S&P 500® companies, except those in the information technology and telecommunication services sectors.
Offers investors a way to reduce or even eliminate exposure to a sector they believe may underperform.
Can serve as a risk management tool for investors who have a large exposure to technology and telecommunication services.
:!: That's almost cool. I see they actually have four of them:

S&P 500 Ex-Energy ETF SPXE
S&P 500 Ex-Financials ETF SPXN
S&P 500 Ex-Health Care ETF SPXV
S&P 500 Ex-Technology ETF SPXT
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
oldcomputerguy
Posts: 3309
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods

Re: Index-ish fund that lacks FAANG?

Post by oldcomputerguy » Fri Jul 20, 2018 8:17 pm

MnD wrote:
Fri Jul 20, 2018 7:27 pm
nisiprius wrote:
Fri Jul 20, 2018 2:51 pm
If you're really serious, and you don't want to deal with shorting ETFs, then you could consider investing in 10 of the 11 Vanguard sector ETFs, in proportion to its cap weight in the S&P 500 and omit the Vanguard Information Technology ETF.
There's an ETF for that! :mrgreen:
But you'll still have Amazon.
http://www.proshares.com/funds/spxt.html

ProShares S&P 500 Ex-Technology ETF seeks investment results, before fees and expenses, that track the performance of the S&P 500 Ex-Information Technology & Telecommunication Services Index.
Focuses on S&P 500® companies, except those in the information technology and telecommunication services sectors.
Offers investors a way to reduce or even eliminate exposure to a sector they believe may underperform.
Can serve as a risk management tool for investors who have a large exposure to technology and telecommunication services.
So call it what you will, it's still a case of the individual investor believing they know more than does the market; in other words, it's stock picking.

The so-called FAANG stocks are a major portion of the market, and a major portion of the income-producing economy of the US. Why would you not want to expose yourself to that income?

I'll stick with VTSAX. Thanks.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

Theoretical
Posts: 1422
Joined: Tue Aug 19, 2014 10:09 pm

Re: Index-ish fund that lacks FAANG?

Post by Theoretical » Fri Jul 20, 2018 8:20 pm

That’s why the last paragraph is in there. Here’s another scenario: you’ve got tons of restricted stock in a particular company that gives you huge single stock risk. In that instance, these products allow you to get CLOSER to the market’s sector concentration, especially since you can’t short stocks you own.

JBTX
Posts: 4039
Joined: Wed Jul 26, 2017 12:46 pm

Re: Index-ish fund that lacks FAANG?

Post by JBTX » Sat Jul 21, 2018 1:00 am

Potential alternatives:

Vanguard dividend appreciation index
Low volatility index
Value index

A combination of these would get you value stocks plus steady/stable/lower risk growth stocks.

User avatar
Noobvestor
Posts: 4753
Joined: Mon Aug 23, 2010 1:09 am
Contact:

Re: Index-ish fund that lacks FAANG?

Post by Noobvestor » Sat Jul 21, 2018 10:45 am

I would think Vanguard Extended Market Index would do the trick (mid/small caps w/o the large)

That said: pretty dangerous to omit the stocks currently driving the market IMHO
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

heyyou
Posts: 3131
Joined: Tue Feb 20, 2007 4:58 pm

Re: Index-ish fund that lacks FAANG?

Post by heyyou » Sat Jul 21, 2018 11:44 pm

At Vanguard, at each fund site, look for the list of the largest stocks owned by the fund. The sum of the individual percentages of the FAANG stocks could be a starting point for how much of the Large Growth sub-asset class to trim from a total market allocation.
Precision is not available, nor important. Just accept a good enough reduction in the exposure.

Consider slicing and dicing several funds together to reduce but not completely eliminate the over exposure to the largest of the Large Growth stocks, perhaps a slice of Extended Market (total market minus the S&P500) plus some Large Value or Large Blend. At Morningstar X-ray, enter the stock fund symbols for all four funds separately (including a total market fund), and look at them, then repeatedly try different combinations of the amounts invested, until a blend of 2-3 funds, looks acceptable on the 3x3 chart.

As a veteran of the 2000 Crash, I too view the high growth of the FAANG stocks as a temporary situation.

User avatar
zaboomafoozarg
Posts: 1954
Joined: Sun Jun 12, 2011 12:34 pm

Re: Index-ish fund that lacks FAANG?

Post by zaboomafoozarg » Sun Jul 22, 2018 12:22 am

Maybe RVRS? It's a reserve-weighted S&P500 ETF, so FAANG would still be in there but at the lowest holdings amounts.

It's still pretty new and small, and I don't own it. But I just saw it the other day and was interested in the idea of holding some of that in conjunction with the total US market fund.

danaht
Posts: 512
Joined: Sun Oct 18, 2015 11:28 am

Re: Index-ish fund that lacks FAANG?

Post by danaht » Sun Jul 22, 2018 9:32 am

I believe FAANG are all in the large cap indexes. Just buy a medium or small cap index fund (VBR). That should exclude your FAANG stocks. Also foreign indexes like VEA, and VWO would exclude FAANG stocks. Although - VWO might have similar Chinese FAANG stocks like Alibaba and Tencent.

sillysaver
Posts: 144
Joined: Thu Oct 08, 2015 5:24 pm

Re: Index-ish fund that lacks FAANG?

Post by sillysaver » Sun Jul 22, 2018 10:18 am

Look for a value index fund for no exposure such as Vanguard Value Index Fund.

I like ETF's with a value tilt, such as Cambria Shareholder Yield. Technically this isn't an index fund, but it's rules-based, broadly diversified and provides exposure to companies with high shareholder return (dividends, buybacks, debt paydown) which aren't "capital destroyers", which eliminates a lot of overpriced junk. Because it's not market cap-weighted, it tends to be more exposed to small and mid-sized companies than Vanguard's.

drk
Posts: 744
Joined: Mon Jul 24, 2017 10:33 pm
Location: Seattle

Re: Index-ish fund that lacks FAANG?

Post by drk » Sun Jul 22, 2018 11:20 am

sillysaver wrote:
Sun Jul 22, 2018 10:18 am
Look for a value index fund for no exposure such as Vanguard Value Index Fund.
While it's not a member of FAANG, users may be surprised to learn that Microsoft is the largest holding in the Vanguard Value fund at 6.1%. Perhaps being a competitor to A, A, and G (maybe a little N) counts for the purposes of this exercise, though.

dh
Posts: 275
Joined: Sun Mar 13, 2011 8:01 pm

Re: Index-ish fund that lacks FAANG?

Post by dh » Mon Jul 23, 2018 7:13 am

drk wrote:
Sun Jul 22, 2018 11:20 am
sillysaver wrote:
Sun Jul 22, 2018 10:18 am
Look for a value index fund for no exposure such as Vanguard Value Index Fund.
While it's not a member of FAANG, users may be surprised to learn that Microsoft is the largest holding in the Vanguard Value fund at 6.1%. Perhaps being a competitor to A, A, and G (maybe a little N) counts for the purposes of this exercise, though.
One of my favorite active value funds at Vanguard (Equity Income, VEIPX) must have sold a significant percent (or all) of it's Microsoft holding. While previously Microsoft was the fund's top holding, it no longer appears in the top 10 holdings (as of June 30, 2018). I only have a few active funds and prefer indexes; however, I do admit that I pay attention to changes that Wellington managers make quarterly.

User avatar
PrettyCoolWorkshop
Posts: 119
Joined: Tue Aug 11, 2015 8:44 pm

Re: Index-ish fund that lacks FAANG?

Post by PrettyCoolWorkshop » Mon Jul 23, 2018 7:32 am

I was about to recommend shares of Berkshire Hathaway, but then I remembered that they added a significant stake in apple stock recently.

Regardless, they have relatively little exposure to the tech sector and would be a fairly good pick for your objective.
Be greedy and fearful. All the time.

Valuethinker
Posts: 35968
Joined: Fri May 11, 2007 11:07 am

Re: Index-ish fund that lacks FAANG?

Post by Valuethinker » Mon Jul 23, 2018 7:44 am

PrettyCoolWorkshop wrote:
Mon Jul 23, 2018 7:32 am
I was about to recommend shares of Berkshire Hathaway, but then I remembered that they added a significant stake in apple stock recently.

Regardless, they have relatively little exposure to the tech sector and would be a fairly good pick for your objective.
Almost none. Their tech play was IBM but I think they sold that down.

Of BH's total NAV, I don't think the Apple investment is more than 1%. Buffett's bridge playing partner is Bill Gates, and he's always said he cannot forecast the cycles of the tech industry to identify broad moats, his key criterion for investment.

aristotelian
Posts: 4673
Joined: Wed Jan 11, 2017 8:05 pm

Re: Index-ish fund that lacks FAANG?

Post by aristotelian » Mon Jul 23, 2018 8:43 am

Another possibility (esp. for tax advantaged account) is equal weight S&P500. It will include FAANG but massively underweighted.

dziuniek
Posts: 463
Joined: Mon Jul 23, 2012 2:54 pm
Location: Corrupticut

Re: Index-ish fund that lacks FAANG?

Post by dziuniek » Mon Jul 23, 2018 3:14 pm

Where are Mel's Unloved Mid-Caps when you need them? :)

http://socialize.morningstar.com/NewSoc ... aspx#27802

User avatar
PrettyCoolWorkshop
Posts: 119
Joined: Tue Aug 11, 2015 8:44 pm

Re: Index-ish fund that lacks FAANG?

Post by PrettyCoolWorkshop » Tue Jul 24, 2018 6:42 am

Valuethinker wrote:
Mon Jul 23, 2018 7:44 am
PrettyCoolWorkshop wrote:
Mon Jul 23, 2018 7:32 am
I was about to recommend shares of Berkshire Hathaway, but then I remembered that they added a significant stake in apple stock recently.

Regardless, they have relatively little exposure to the tech sector and would be a fairly good pick for your objective.
Almost none. Their tech play was IBM but I think they sold that down.

Of BH's total NAV, I don't think the Apple investment is more than 1%. Buffett's bridge playing partner is Bill Gates, and he's always said he cannot forecast the cycles of the tech industry to identify broad moats, his key criterion for investment.
In that case, considering apple is less than 1% of NAV of BRK, I would strongly recommend BRK. I remember seeing the headlines some time ago, seeing that BRK bought XX million shares of apple stock, and assumed that was a huge stake. Guess they're so huge that it's a small stake!
Be greedy and fearful. All the time.

User avatar
Carlos Danger
Posts: 45
Joined: Fri Mar 16, 2018 6:32 pm

Re: Index-ish fund that lacks FAANG?

Post by Carlos Danger » Tue Jul 24, 2018 7:31 am

The only decent 403(b) option available to us is a State Street S&P 500 index fund.

As a result, heavily using VTSAX in our Vanguard IRA/Taxable accounts along with the above meant we had a pretty decent % of our portfolio in FAANG. So I stopped using VTSAX and instead "slice and dice" in our Vanguard account. We have a little in ARKW, which does have FAANG (and some other stocks I wanted more exposure to), and we own a single share of Amazon, but otherwise FAANG-free in our Vanguard accounts. A little VPU and VNQ, IPAY (Visa, Mastercard, Amex, Paypal, etc.), ITA & IHI (iShares Aerospace/Defense and Medical Devices), IVOO and VIOO (Vanguard S&P 400 & S&P 600), VXUS (International), etc.

The end result is that instead of over 10% of our portfolio (VTSAX) or 12% (S&P 500), FAANG is around 5% of our equities portfolio, and our returns have been better than the S&P the past few years. Of course there will be times when they trail.

Either way I personally do not want the risk of having 10-12% of our portfolio in 5 companies, especially when I personally believe NONE are bullet-proof. Who's to say another device maker not named Apple won't become the new hot fashion tech co.? Let's be honest, a big part of Apple's dominance is fad/fashion related. Who's to say someone like Walmart (well, probably not Walmart based on efforts so far) won't eventually figure out how to offer a better online shopping experience than Amazon? Who's to say someone won't offer better web services? Who's to say another search engine won't start beating Google/video site start beating their Youtube site? Google's antics aren't exactly popular with a portion of the electorate; remember the wise, alleged Jordan quote about people of all persuasions buying sneakers. Who's to say Netflix won't face overwhelming competition? They still rent a lot of content. Disney owns way more desirable/popular content even before the FOX deal gets done. Other media companies also own a lot more content. It might be easier for them to build a service similar to Netflix than it will be for Netflix to produce a vast library of quality original content similar to theirs. Who's to say someone doesn't come along and do to Facebook what Facebook came along and did to Myspace?

Indexing is great. I think it's the best investing option out there, and we are overwhelmingly invested in an S&P 500 Index fund. But it's not without it's flaws. I think we're in the middle of a significant development along those lines, a sort of circular cycle that causes a few stocks to continually rise as a % of the index, beginning to chip away at one of the advantages of indexing - extreme diversification. ~12% today, but I could easily see FAANG being 20% of the S&P 500 index funds tomorrow. I would actually prefer to employ the Ron Popeil method of investing and "Set it, and forget it" with VTSAX and a little International as well (~20%). But I personally have a problem with FAANG turning into a portfolio blob and growing larger and larger. Apple ALONE is nearing 3% of VTSAX and 4% of S&P 500 funds. I like Apple A LOT as an investor, but NOPE. Not doing that. Especially since there is no guarantee it doesn't blow right through those levels and keep going. Especially since you can get the same kind of returns without letting those 5 firms dominate your portfolio. ITA and IHI have performed as well as the Qs over the past few years. I'd much rather have a little more Boeing, Lockheed, Medtronics, and Abbott Labs, which COMBINED still make up less of our portfolio than Apple does of the total U.S. Stock Market.

bayview
Posts: 1550
Joined: Thu Aug 02, 2012 7:05 pm
Location: WNC

Re: Index-ish fund that lacks FAANG?

Post by bayview » Thu Jul 26, 2018 2:01 pm

dziuniek wrote:
Mon Jul 23, 2018 3:14 pm
Where are Mel's Unloved Mid-Caps when you need them? :)

http://socialize.morningstar.com/NewSoc ... aspx#27802
I'm happy with our bit of VIMAX (mid-cap index) today. This is not instead of VTSAX (total US). It's in addition to.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

AerialWombat
Posts: 184
Joined: Tue May 29, 2018 1:07 pm

Re: Index-ish fund that lacks FAANG?

Post by AerialWombat » Tue Jul 31, 2018 12:26 pm

Thanks so much to everybody for their comments. Lots of good points made here.

Based on recommendations here and in another thread, here's what I've decided to do:

1). Not worry about it as much because of the fact that my target AA is 30/70 stocks/bonds. With such a high bond allocation, many of you convinced me that I'm just overreacting.

2). Keep VT (Vanguard Total World) as my main holding in 401k, but add some tilt with VSS and VBR to increase small cap exposure.

Thanks!

rgs92
Posts: 2165
Joined: Mon Mar 02, 2009 8:00 pm

Re: Index-ish fund that lacks FAANG?

Post by rgs92 » Tue Jul 31, 2018 12:32 pm

Vanguard Equity Income?

Elemental
Posts: 150
Joined: Fri Feb 06, 2009 5:08 pm

Re: Index-ish fund that lacks FAANG?

Post by Elemental » Tue Jul 31, 2018 3:00 pm

Here's an article from yesterday at MarketWatch that looks like what you might be looking for.

https://www.marketwatch.com/story/fear- ... 2018-07-26

david1082b
Posts: 371
Joined: Fri Jun 09, 2017 12:35 pm

Re: Index-ish fund that lacks FAANG?

Post by david1082b » Tue Jul 31, 2018 3:37 pm

PrettyCoolWorkshop wrote:
Tue Jul 24, 2018 6:42 am
Valuethinker wrote:
Mon Jul 23, 2018 7:44 am
PrettyCoolWorkshop wrote:
Mon Jul 23, 2018 7:32 am
I was about to recommend shares of Berkshire Hathaway, but then I remembered that they added a significant stake in apple stock recently.

Regardless, they have relatively little exposure to the tech sector and would be a fairly good pick for your objective.
Almost none. Their tech play was IBM but I think they sold that down.

Of BH's total NAV, I don't think the Apple investment is more than 1%. Buffett's bridge playing partner is Bill Gates, and he's always said he cannot forecast the cycles of the tech industry to identify broad moats, his key criterion for investment.
In that case, considering apple is less than 1% of NAV of BRK, I would strongly recommend BRK. I remember seeing the headlines some time ago, seeing that BRK bought XX million shares of apple stock, and assumed that was a huge stake. Guess they're so huge that it's a small stake!
Is the Apple stake really less than 1% of BRK's "NAV"? Which metric are you looking at to get this calculation? What do you mean by "NAV" exactly?

AAPL shares held by BRK: 239,567,633 https://www.msn.com/en-us/money/stockde ... titutional https://www.cnbc.com/berkshire-hathaway-portfolio/

x 190 = 45 billion 500 million. Multiply by 100 and we get 4.5 trillion "NAV" we need to find.

BRK price to book is 1.4 right now: https://ycharts.com/companies/BRK.A/price_to_book_value

BRK's market cap is currently 490 billion, which is 40% more than the book value, which would make Apple more than 10% of the book value I guess? Market cap source: https://finance.yahoo.com/quote/brk-A?ltr=1

Looking at assets:
Berkshire Hathaway Total Assets (Quarterly):
702.65B for March 31, 2018 https://ycharts.com/companies/BRK.B/assets


This would make the 45 billion Apple stake around 5% to 6% of the total assets I guess.

selters
Posts: 597
Joined: Thu Feb 27, 2014 9:26 am

Re: Index-ish fund that lacks FAANG?

Post by selters » Wed Aug 01, 2018 8:46 am

MnD wrote:
Fri Jul 20, 2018 2:30 pm
Buy the total market and short the individual FAANG stocks in proportion to their weight in total market.
Net return will track your hypothetical total market minus FAANG index fund.
Have fun with that.
But at what cost can you short FAANG?

rgs92
Posts: 2165
Joined: Mon Mar 02, 2009 8:00 pm

Re: Index-ish fund that lacks FAANG?

Post by rgs92 » Wed Aug 01, 2018 12:53 pm

With this strategy, you would have missed Apple's run-up today. This really a form of market timing (or sector selection).
Why not also drop the Utility sector because you think interest rates are going up?
It's the same thing.

User avatar
ReformedSpender
Posts: 178
Joined: Fri Mar 16, 2018 1:24 pm
Location: Stone's Throw from Vanguard

Re: Index-ish fund that lacks FAANG?

Post by ReformedSpender » Thu Oct 11, 2018 9:56 am

FAANG stocks lost $175.5 billion in market cap yesterday, their biggest dollar decline ever

Image
Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high. The best fishing is done in the most stormy waters.

iamlucky13
Posts: 1000
Joined: Sat Mar 04, 2017 5:28 pm
Location: Western Washington

Re: Index-ish fund that lacks FAANG?

Post by iamlucky13 » Thu Oct 11, 2018 10:42 am

oldcomputerguy wrote:
Fri Jul 20, 2018 8:17 pm
So call it what you will, it's still a case of the individual investor believing they know more than does the market; in other words, it's stock picking.

The so-called FAANG stocks are a major portion of the market, and a major portion of the income-producing economy of the US. Why would you not want to expose yourself to that income?

I'll stick with VTSAX. Thanks.
Reread AerialWombat's original post. What they actually said is they are concerned about potential correlation of specific high cap funds with their own small business, not outsmarting the market.

That said, I do wonder if they also, although wombat didn't say so, have concerns about the high valuations of those stocks - I see an average PE over 50 mentioned for FAANG earlier this year. If so, perhaps a value tilt is also something to consider.

But with a 30/70 allocation, I agree with others that this should not be a major concern for the OP.

inbox788
Posts: 5483
Joined: Thu Mar 15, 2012 5:24 pm

Re: Index-ish fund that lacks FAANG?

Post by inbox788 » Thu Oct 11, 2018 10:50 am

ReformedSpender wrote:
Thu Oct 11, 2018 9:56 am
FAANG stocks lost $175.5 billion in market cap yesterday, their biggest dollar decline ever

Image
Only 28 companies currently on the SP500 have market caps higher than that.

171.36 Billion is the total market for Disney! Imagine wiping everything Disney off the map in one day.

http://www.symbolsurfing.com/largest-co ... talization

And just below that is Comcast, Pepsi, Nvdia, AbbVie, Netflix, DowDupont, Amgen, McDonalds, and IBM ($130-162B market caps).

FWIW, trying to buy market and short FAANG isn't going to be very efficient use of funds. You're paying twice the expenses and using up a lot of margin. Long term, those costs will hurt you. For short term market timing, that may work if you're right about the relative performance.

Post Reply