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'I'm trimming these names': See why Kevin O'Leary is pulling back from FANG stocks

  • The FANG stocks have pulled the S&P 500 to record highs.
  • Investor Kevin O'Leary says he's pulling back from the four tech giants.
  • O'Leary says doing so could help "reduce the back end of the year's volatility."

Tech stocks' dazzling performance might be giving some investors tunnel vision — but Kevin O'Leary is not one of them.

The blowout performance of the four tech titans known as the "FANG" stocks — Facebook, Amazon, Netflix and Google parent company Alphabet — has been a boon to the S&P 500, which is currently boasting gains of more than 16 percent from last year. Nearly a quarter of the index's market value is resting on the information technology stocks being led by FANG.

The temptation to keep betting on the fastest horse is difficult to argue against, according to NYSE trader Steve Grasso.

"How do you tell people to rotate into energy when tech has performed the way it has?" said Grasso, a trader at Stuart Frankel & Co., on CNBC's "Closing Bell" Monday.

Kevin O'Leary
Scott Mlyn | CNBC
Kevin O'Leary

Kevin O'Leary, chairman of O'Shares Investments, says he wants to hedge his bets before those horses are played out.

"For the rest of the year, you have to believe such a concentrated set of horsemen are going to keep driving you forward — or is it time to start diversifying?" O'Leary said on "Closing Bell."

"I'm going in the diversification camp. I'm trimming these names into this good news. I'm not divesting, I'm just pulling them back," he said.

Shares of Alphabet fell more than 3 percent in extended trading after the tech giant reported a drop in profit on its second-quarter earnings report. But Facebook and Amazon will disclose their quarterly earnings this week as well.

"It's about taking some off the table to reduce the back end of the year's volatility," O'Leary said. "We've all made so much money on the FANGs, what's wrong with diversification?"