This analysis was first published in SvD Näringsliv, in Swedish, on November 16th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
The influential S&P 500 is said to show how the American stock market is doing. But in practice, it is seven individual tech stocks that are holding the entire index — and millions of Swedish pension savers — under their wings.
The city of Omaha, Nebraska, is rarely as popular as it is every May. That is when the world flies in to attend the annual meeting of Berkshire Hathaway. A normally rather ordinary event has become a kind of show where Warren Buffett and Charlie Munger hold court and dispense aphorisms.
“For most people, the best thing they can do is own an index fund with S&P 500. A lot of people pay a lot of money for advice they don’t really need,” said Buffett at the 2020 meeting.
The S&P 500 is a stock index comprising 500 of the largest listed companies in the US (that also meet a range of other criteria). How it performs is considered an indicator of the health of the American equity market as a whole.
Or at least that has been true until now.
Pull out seven stocks from the 500 and a completely different picture emerges.
The Economist calls them “the magnificent seven.” They are familiar company names to anyone who reads these analyses. Tech giants Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, Nvidia, and Tesla account for 1.4 percent of the index by number — but represent a full 29 percent of its value.
So far this year, the S&P 500 has risen around 15 percent. Remove the seven tech giants and look at the remaining 493, and the picture is not as cheerful. The S&P 493 — as The Economist calls them — actually fell 2 percent in the first ten months of the year. The seven tech companies rose 52 percent.
Swedish tech companies have not enjoyed the same dazzling performance. The OMX Stockholm Technology PI index — a selection of tech companies on the Stockholm Stock Exchange — has fallen around 10 percent since the start of the year. And that is before counting individual casualties outside the index: streaming service Viaplay (down 87 percent), investment company Kinnevik (down 32 percent), and gaming company G5 Entertainment (down 31 percent).
There are no tech giants in Europe or Sweden remotely comparable to the American seven.
The enormous size of these seven companies also creates challenges around how various indices are weighted. It means that Swedes can end up with very large exposure to these seven giants — even if they have not explicitly bought any tech funds. They are so large that they appear in both US funds and global funds. Look at the popular Swedish fund Länsförsäkringar Global Index and its seven largest holdings are precisely the tech giants listed above. The same pattern holds at other major funds in the Swedish market.
“The magnificent seven” dominate among the most popular pension funds too. The default fund AP7 Såfa, owned by close to 5.3 million Swedes, follows the same pattern: of its ten largest holdings, all but one are in the tech sector. A total of 16 billion kronor of these pension savings sit in chip company Nvidia, currently trading at a rich valuation of 37 times revenue. The equivalent figure for Apple is around 8. And this is the fund you are automatically placed in when you have made no active choice about your premium pension.
Two things become clear when looking at this distribution.
First and foremost, it is evident that the very largest tech companies in the US have left the stock market and the rest of their category far behind. They are now in their own orbit — far removed from their industry peers. Talking about tech companies as a single category is no longer meaningful without distinguishing these seven from the rest of the list.
The second is that Swedish retail investors and pensioners have a greater exposure to tech companies than they probably realise. Savers who explicitly buy tech funds know what they are getting into. But that the tech giants dominate ordinary funds to this degree is not equally obvious.
Even those who have made no active choice about their pension at all now have a stake in billions of kronor worth of chips being sold for AI development. Because whether you believe in them or not, these tech stocks are almost certainly somewhere in your savings.
For all our sakes, let us hope they keep doing as well going forward.
