Should you limit exposure to US tech stocks?

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published 20 March 2025

It would be quite a coincidence if the AI boom turns into a bust on the 25th anniversary of the end of the dotcom bubble, and we should be wary about jumping to that conclusion. People are very good at seeing patterns where there are none and certain things (round numbers and big anniversaries) tend to trigger that. Many of us are sub-consciously looking for signs of a crash.

Still, markets are more on edge than they have been for a while. In particular, they feel more jittery than they did in 2022, when rapidly rising interest rates provided a very fundamental reason for investors to rejig their portfolios. The latest shifts are more about sentiment: investors may be questioning whether they should put so much trust in American exceptionalism.

There are some comforting differences between now and 2000. Today’s brightest stars have been huge firms with high profitability and strong cash generation, in contrast to profitless dotcom stocks (although it’s worth noting that it wasn’t all online pet stores back then – there was also plenty of hype around successful firms such as Cisco, which have never regained their all-time highs). However, the downside is that markets have become very dependent on these giants.

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The US market is at its most concentrated for 92 years, according to research from Elroy Dimson, Paul Marsh and Mike Staunton in the annual UBS Global Investment Returns Yearbook. The top ten stocks now account for 35% of total market value. In turn, America dominates global markets: US-listed stocks account for almost 65% of total global capitalisation, the highest level since the aftermath of World War II. For investors who hold a global tracker – or a fund benchmarked against one – exposure may be higher: the US is 73% of the MSCI World index.

For balance, we should note that while concentration is high, it looks most extreme when you only consider the last 50 years or so. The US market was comparably concentrated in a few stocks until the mid 1960s, and it dominated global markets to a similar extent from the 1940s to the early 1970s. If you believe that US-listed firms will keep leading the global economy, this level of concentration may feel reasonable. Still, the US is more highly valued than most markets, while rising global trade tensions increase the risk of a more fragmented world that may not be so favourable for American multinationals.

The MoneyWeek exchange traded fund (ETF) portfolio has equal amounts in the US, Europe, Japan and emerging markets, so we don’t have the concentration of a global tracker. However, with our usual end of tax year review and rebalancing now due, we will make one change by swapping Vanguard S&P 500 (LSE: VUSA) for Xtrackers S&P 500 Equal Weight (LSE: XDWE). Equal weighting stocks reduces the concentration of our US holdings in tech mega caps. In making this change, we’ll bring the position back to its target weight of 10%.

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.