How can I avoid investing in the Magnificent 7 and SpaceX?

Q. I’m concerned that the artificial intelligence investments of the US big tech companies are a bubble that will inevitably burst. Are there any tracker/quasi-tracker funds that exclude (or severely limit) exposure to the US tech giants, including Space X?

A. Yes, these stocks are easily avoided by tracker fund investors. Indeed, such is the variety of indices, and the funds and ETFs (exchange-traded funds) that track them, that almost any investment strategy can be pursued this way. Here are some trackers that avoid the big US tech stocks, either entirely or substantially.

An ‘equal-weight’ tracker. These funds have the same percentage of their money in each of their holdings, rather than the usual practice of putting higher percentages into bigger stocks. For example, an ordinary S&P 500 tracker such as the Vanguard S&P 500 ETF has 7.9% of its money in Nvidia, to reflect that company’s market value as a percentage of the value of the whole index. Apple makes up 6.5% of the fund, Microsoft 4.9%, Amazon 4.2%, Alphabet (Google) 6.5%, Meta (Facebook) 2.2% and Tesla 1.7%. These are the kind of significant exposures to the Magnificent 7 that some investors may want to avoid.

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An equal-weight S&P 500 tracker such as the Legal & General S&P 500 US Equal Weight Index Fund, by contrast, has equal exposure to each of the 500 or so members of the index. In other words, Nvidia, Amazon, Tesla and so on will each account for just 0.2% of the fund and total exposure to the Mag 7 will be just 1.4% or thereabouts (position sizes can vary slightly for various technical reasons). Both of the S&P 500 trackers mentioned belong to Fidelity’s Select 50 list of recommended funds. A global equal-weight tracker is the Invesco MSCI World Equal Weight ETF, which has about 0.1% exposure to each of its 1,293 holdings.

A mid-cap or small-cap tracker. A simple way to avoid the tech giants is to invest in small or medium-sized companies, via a tracker fund such as the Vanguard Global Small-Cap Index Fund, a Select 50 member, or the State Street SPDR S&P 400 US Mid Cap ETF.

A ‘low-volatility’ fund. These funds invest in companies whose share prices have tended not to suffer big ups and downs. In practice, this steers them towards more defensive, well established businesses. One such fund, the State Street SPDR S&P 500 Low Volatility ETF, aims to track an index that measures the performance of the 100 least volatile stocks in the S&P 500 index. Its top 10 holdings have no Mag 7 representation and instead include Berkshire Hathaway as well as several energy firms.

A UK, Europe, Japan or emerging markets tracker. At the risk of stating the obvious, such funds will avoid the big American tech stocks, although a European fund may own ASML, the chipmaking machine manufacturer, and an emerging markets fund is likely to have a stake in Taiwan Semiconductor Manufacturing Company (TSMC), Samsung or SK Hynix, all of which are seen as key AI enablers. Non-US trackers to consider include the iShares Core FTSE 100 ETF, the Vanguard FTSE Developed Europe ex UK ETF, the iShares Core MSCI Japan IMI ETF and the iShares Core MSCI EM IMI ETF (for emerging markets). All these funds are members of the Select 50.

• Read: The funds that already invest in SpaceX
• Read: SpaceX IPO: what you need to know

For investors who want specifically to avoid SpaceX, which is about to float in New York, there are also options. Standard & Poor’s, the company behind the S&P 500 index, has said SpaceX will not qualify for inclusion in that index because it is loss-making and because not enough of its shares are being made available to outside investors on the stock market. Its shares will therefore not be included in S&P 500 tracker funds for now, although they could be admitted to the index, and therefore included in funds that track it, in future. SpaceX is not excluded from immediate entry into all S&P indices, however.

The Nasdaq exchange has taken a different approach and will include SpaceX in its Nasdaq 100 index. Nasdaq 100 index funds will therefore buy a sizeable portion of publicly available SpaceX shares when the company joins that index.

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When it comes to actively managed funds, the managers will of course decide if and to what degree they want exposure to SpaceX. It’s noticeable that certain funds that have significant holdings in other technology stocks have avoided Tesla, Mr Musk’s other company, at least within their top 10 holdings. Examples include Polar Capital Technology Trust, Polar Capital Global Technology Fund, Allianz Technology Trust, JPMorgan Global Growth & Income Investment Trust and Blue Whale Growth Fund.

Stephen Yiu, who runs Blue Whale Growth, has never owned Tesla and is avoiding SpaceX too. ‘We would rather pay a reasonable price for highly profitable companies today than pay a significant premium in the hope that it [SpaceX] will prove successful,’ he told Fidelity.

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.