Explore how the dominance of tech giants like Apple and Amazon could impact your offshore investment strategy and learn the importance of diversification. File photo.
Investment experts recommend diversifying your investments offshore, and many South African investors do that in a global equity index-tracking exchange traded fund (ETF). While this is an easy, inexpensive way to invest offshore (I extolled the virtues of global equity ETFs in a column last year), it may be worthwhile having a closer look at the components of the index your ETF is tracking, to find out exactly what you’re invested in.
As far as I am aware, all global equity indices tracked by local ETFs are weighted according to the constituents’ market capitalisation, meaning that the larger the company (or at least the larger the company’s value according to what its shares sell for on the stock market), the larger its percentage of the index. This percentage is known as the company’s “index weighting”.
There is little guessing as to which companies are the world’s largest by market capitalisation and thus have the highest weightings in global indices. They are America’s “Magnificent Seven” tech giants: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.
The leaders of these mega corporations are cosying up to new US president Donald Trump, and it seems likely, in the short term, the shares will continue to rise. These companies have produced bumper returns for investors over the past couple of years. But their share valuations are through the roof when measured against average valuations on the US stock market, and some analysts are worried that they are in bubble territory and are destined for a fall in the medium term.
Share valuations
The value of a share can be measured by its PE (price-to-earnings) ratio, which gives you an idea of how a company’s share price relates to its profitability. Typically one would look at future profitability (projected earnings), but it’s also helpful to see how PE ratios have trended historically based on realised performance.
According to the website World PE Ratio, which charts the PE ratios of global markets, the average PE ratio of the New York Stock Market (NYSE) over the last 20 years was 16.2. In other words, the average US company’s share price was about 16 times its annual earnings (profits) per share.
As of this month, January 2025, the PE ratio of the NYSE is 27.6, or 70% higher than its 20-year average. This is, of course, a reflection of the dominance of the tech giants, which have massively inflated PE ratios.
Nvidia’s PE ratio is a jaw-dropping 55.5, well over three times the NYSE 20-year average. Amazon’s is 47.1, Apple’s is 34.1 and Meta’s is 28.6. Taking top spot, however, by a mile in the PE stakes is Elon Musk’s Tesla motor corporation, with a PE ratio of 116.8. Theoretically, this means that, buying the share now, it would take 117 years at current profits for you to reap the money back in per-share earnings.
The ultra-high valuations are based on investors’ common assumption that these companies will grow faster in the future than they have in the past, and that’s a big ask over the medium term. Even enjoying the tailwinds of Trump’s largesse for the present, it’s hard to see how such large companies can continue to grow exponentially.
However, as the crypto craze continues to teach us, markets can be highly irrational, and they can be in this state longer than you can remain solvent, to paraphrase economist John Maynard Keynes.
If you’re invested in an index such as the S&P500 or MSCI World, you are probably enjoying the ride. Just be aware of the extent to which the tech giants dominate those (and other) indices and consider diversifying your investments to avoid concentration risk – having all your eggs in one basket.
Big tech holdings
I took a sample of global equity ETFs and one US equity ETF to show the extent to which the tech giants loom large in their holdings. Even broad global indices, such as the S&P Global 1200 ESG Index and the MSCI All Country World Index, have a surprisingly large exposure. All positions were as at the end of November (unless stated otherwise).
• Sygnia 4th Industrial Revolution Actively Managed ETF: Apple 7.9%, Nvidia 7.5%, Microsoft 7.4%, Amazon 7.0%, Alphabet 6.5%, Meta 4.0%, Tesla 2.6%.
• Satrix S&P500 Feeder ETF (December 2025): Apple 7.6%, Nvidia 6.6%, Microsoft 6.3%, Amazon 4.1%, Alphabet 4.0%, Meta 2.6%, Tesla 2.3%.
• Sygnia Itrix S&P Global 1200 ESG ETF: Apple 6.9%, Nvidia 6.5%, Microsoft 6.0%, Alphabet 3.5%, Tesla 1.8%
• Satrix MSCI World Feeder ETF: Apple 5.0%, Nvidia 4.7%, Microsoft 4.2%, Alphabet 3.0%, Amazon 2.7%, Meta 1.7%, Tesla 1.4%.
• Satrix MSCI All Country World Feeder ETF: Apple 4.5%, Nvidia 4.3%, Microsoft 3.8%, Amazon 2.5%, Alphabet 2.3%, Meta 1.6%, Tesla 1.3%.
Unit trust positions
Some actively managed unit trust funds barely deviate from the holdings of their benchmark indices (which means you’re paying extra in fees for performance you’d get with an ETF). Others however, differ markedly, some radically, depending on their investment philosophy, with “value” managers (those that buy shares that offer good value) actively shunning the overpriced Magnificent Seven.
For example, the M&G Global Equity Feeder Fund has a far more even exposure (maximum 3.3%) to offshore companies, including the Magnificent Seven, while the Allan Gray-Orbis Global Equity Feeder Fund invests in companies you’ve likely never heard of, with only Alphabet in its top 10 holdings.
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