CONTRIBUTORS
Jeffrey Schulze, CFA
Head of Economic and Market Strategy
The 10 largest companies in the S&P 500 Index comprise a record 38.7% of the benchmark. While this could be problematic at the index level, it presents an opportunity for active managers who tend to do better when the average stock is outperforming. In fact, when the top 10 weights in the S&P 500 have historically accounted for over 24% of the benchmark, the equal-weight S&P 500 has outperformed its cap-weighted counterpart by an average of 7.4% (annualized) over the next five years since 1989 with positive relative returns occurring 100% of the time.
These same dynamics have held true when market concentration is in the 21-24% as well, albeit to a lesser degree. As a result, we believe this should create a competitive advantage for the “average stock” and in turn active managers that can sidestep this concentration risk in the coming years.
Concentration Leads to Broadening: The Sequel
Data shown is from Dec. 1989 – Dec. 2024. Monthly constituent level market cap data. Data as of Dec. 31, 2024. Source: FactSet. The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the United States. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. Active management does not ensure gains or protect against market declines.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
Equity securities are subject to price fluctuation and possible loss of principal. Large-capitalization companies may fall out of favor with investors based on market and economic conditions. Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks.
Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.
US Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the US government. The US government guarantees the principal and interest payments on US Treasuries when the securities are held to maturity. Unlike US Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the US government. Even when the US government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.