Ozempic Can’t Help Your Overweight in Big Tech: Global ETF Diversification Ideas for 2024

The start of a new year brings a chance for reflection and re-evaluation. For investors, a chance to rebalance. Franklin Templeton ETFs’ Dina Ting and Marcus Weyerer highlight the pitfalls of overweight exposure to mega tech stocks and where in the world to look for diversification in 2024.

Key takeaways:

  • The artificial intelligence (AI) race has sustained record high-concentration ratios for the S&P 500 Index, but also pose risks.
  • The 2024 election avalanche may create short-term economic divergence globally and market volatility.
  • Nearshoring benefits Mexico, less so Canada, while Brazil’s low sub-10x price-to-earnings valuation still presents opportunities, in our analysis.
  • Asia offers diverse investment opportunities, with the semiconductor cycle looking up in South Korea and Taiwan.

If you’re sitting down to take in some investment projections for 2024, perhaps you’re already anticipating some trending keywords and have a (mental) bingo card of buzzwords in mind. Give yourself credit if you can check off #Magnificent7 given all the chatter over how top-heavy the S&P 500 Index has become and whether the “Magnificent Seven” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) stocks are worthy of their rich valuations.

We do foresee the AI theme buoying such mega tech companies, regardless of how well their stocks may continue performing into the new year. But keep in mind that the top-10 stocks of the S&P 500 make up almost one-third of the index’s market capitalization, with the Magnificent Seven comprising well over a quarter of market cap and contributing almost all of its year-to-date appreciation.1 Be mindful of this “magnificent” overconcentration, which also means that the United States accounts for more than 60% of the MSCI All Country World Index (ACWI).2

On the other side of the globe is the world’s largest consumer of semiconductor chips—China. Even as its markets struggle with cyclical weakness, and the United States continues to lead the global AI innovation race, this revolutionary technology is quickly being deployed across China. Areas such as Beijing, Shenzhen and Shanghai have been ramping up aspirations to become the Middle Kingdom’s AI talent hub alongside other regional hotspots like India, which boasts accommodating policy and skilled but cheap labor. Strategic investors might therefore want to consider their US equity allocations for 2024 with a view toward reducing record-high concentration ratios and the need to factor in risks such as 2024’s busy calendar of economically consequential elections across major global powers.

Importantly next year, some four billion people—over half of the world’s population—will head for polling stations to cast ballots for general, regional or local elections scheduled in more than 70 countries.