European ETF investors have a significant exposure to US tech stocks, raising concerns about market concentration

From Morningstar: 2024-08-14 04:48:00

European ETF investors have been shaken by the recent US market crash, as billions have been allocated to Wall Street ETFs. The largest ETF category in Europe, US large-cap blend equity, has EUR 383 billion in assets. Over the past year, it received EUR 52.5 billion in net flows, ranking first in investors’ choices.

Investors in European ETFs have significant exposure to the US market, particularly in large-cap global equities where American stocks make up 64.7% of the total assets. ETFs investing in US technology stocks have also seen significant inflows, with EUR 5.5 billion invested over the past twelve months.

The recent US market crash has raised concerns about the concentration of the market, with the Magnificent Seven tech stocks contributing significantly to market gains. Technology stocks have been driving market performance, with the sector responsible for almost all of the market’s growth in the second quarter of 2024.

ETFs that replicate US market indices show a high concentration in the top 10 positions, with technology stocks dominating. The largest ETFs, such as iShares Core S&P 500 and Vanguard S&P 500, have significant holdings in tech giants like Nvidia, Apple, Amazon, and Microsoft. Diversification remains crucial for successful investing in concentrated markets.

Investors are reminded of the importance of diversification in the wake of the recent market turmoil, as over-exposure to specific sectors or geographical areas can increase risk. Maintaining a well-diversified portfolio is key to long-term investing success, as market shocks can expose vulnerabilities in concentrated positions.



Read more at Morningstar: Do Europe’s ETF Investors Own Too Much US Tech?