As recent market action shows, there are perils with investments that track market-capitalization-weighted indexes—especially when a rally goes into reverse.
For example, investors who buy SPDR S&P 500 (SPY) exchange-traded fund, which tracks the largest U.S. listed companies, might think their portfolio is diversified. But that is only sort of true, especially in the current market where the index is heavily weighted with technology stocks such as Amazon.com, Apple and Google parent Alphabet.
“The…
