Finally, I notice that hedge funds started to unwind their heavily over-crowded long positions in Nvidia about two weeks ago. These fickle investors are often the canary in the coal-mine at turning points.
My biggest concern about Nvidia is that many people are more heavily exposed to the company’s shares than they realise. Even if a fall in the value of this one stock does not trigger a wider negative shift in sentiment (I think it would), then the outsize presence of Nvidia in many investment portfolios is a reason to be worried.
Many novice investors start their investing journey with a global index-tracking fund. For good reason. It appears to offer an attractive combination of low cost and broad diversification. Even Warren Buffett said 10 years ago that, after his demise, his wife should invest 90pc of her money in a low-cost S&P 500 tracker. I’m not sure he would say the same today.
That’s because a US or Global tracker fund is a massive bet on the tech sector. Far from being a low-risk investment, it has become a gamble on a continuation of the investment status quo.
A look at the top holdings of one representative tracker, the L&G Global Equity Index Fund, bears this out. More than a fifth of the fund is held in just 10 stocks, eight of which are technology companies and nine of which are American. One pound in eight of an investment in this fund is in Microsoft, Apple and Nvidia.
And this concentration is not just a US phenomenon. If you were to buy an emerging market tracker fund, you might be surprised to know that 8pc of your money is invested in just one company: Taiwan Semiconductor Manufacturing Company. Want to track the European stock markets? Almost a tenth of your cash is in just two companies: Novo Nordisk and ASML.
I don’t know how the Nvidia story unfolds from here. But I do take from this week’s setback three important nuggets of investment wisdom. Know what you are investing in. Beware when share prices head straight up the page. And remember that it is rarely different this time.
Tom Stevenson is an investment director at Fidelity International. The views are his own.
