October has been yet another strong period for the TSP.
So far in the month, the G Fund is up a fraction of a percent, while the F Fund is down a fraction of a percent. The C Fund is up about 2.5%, the S Fund is up about 1.5%, and the I Fund is up just under 1%. In other words, American large-caps led the way this month by a significant margin.
The C Fund is becoming increasingly concentrated due to its weighting based on market capitalization. Although it represents the S&P 500 (some of the largest 500 companies in the United States), the top ten companies alone account for over 20% of the index. This is of course no fault of the C Fund; the S&P 500 itself is what is becoming concentrated.
Last week, Google, Microsoft and Amazon (the second, third, and fifth largest companies in the C Fund, respectively) reported excellent quarters. On Friday alone, Google went up almost 5%, Microsoft went up almost 7%, and Amazon went up over 13%.
Apple and Facebook (the first and fourth largest companies in the index) also jumped 3-5% on Friday despite not reporting earnings yet, because by association with the other top names, investors expect good quarterly reports from them in this upcoming week.
The outperformance of these five companies alone was mostly responsible for the difference between the C Fund and the other equity funds.
The Changing Face of the C Fund
Back in 1990, tech stocks accounted for about 7% of the S&P 500 and the C Fund that follows it. This made tech stocks the second smallest sector in the index.
Fast forward to the height of the Dotcom Bubble ten years later, tech stocks peaked at around 35% of the index as they became grossly overvalued. Microsoft, Dell, Cisco, and Intel were some of the largest tech companies at the time.
Just two years later, when the Dotcom Bubble had popped, tech stocks made up about 14% of the C Fund. This was about double what they were in 1990, but less than half of what they were in 2000.
Over the past 15 years since then, tech stocks have steadily climbed back up to high levels, and now account for over 23% of the C Fund, which makes them by far the largest sector once again. Financials and Healthcare are the next two largest sectors, both at under 15% of the index.
In fact, the top five companies in the C Fund by market share are all tech companies: Apple, Google, Microsoft, Facebook, and Amazon. These five names alone account for over 12% of the 500-company index.
Since 1990, technology, financials, and healthcare have all dramatically risen in the C Fund and the economy as a whole. Industrials, materials, utilities, and telecom on the other hand have all fallen in percentage. Consumer products have remained fairly constant, and energy has been volatile with ups and downs.
Here’s a snapshot of the current sector balance of the S&P 500 and C Fund:
And this understates it, because Amazon straddles the line between a tech company and a retailer, and for the purposes of the index is placed in the Consumer Discretionary category rather than Information Technology. They’re the largest cloud computing company by market share (where they host other companies’ software and services), they make the Kindle, Echo, and other electronic devices, but they’re also a massive online retailer. If that company were listed as technology, it would bump the technology sector to over 25% of the index.
Going forward over the next few years, the fate of a handful of tech companies, along with the financial and healthcare sectors, will determine about half of the performance of the C Fund.