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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.

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