SP500 10 stock concentration

[Lsbcal]

I learned somethings from this Ben Carlson article:
https://awealthofcommonsense.com/2024/02/is-the-u-s-stock-market-too-concentrated/

We’re now looking at one-third of the index in the top 10 names alone. If we broaden out to the top 25 holdings, they make up 46% of the index.

As recently as 2015, the top 10 stocks in the S&P 500 made up less than 20% of the total.

It’s important to note that these weights are cyclical and all over the map historically.

Throughout the 1950s and 1960s the top 10 stocks regularly made up around a third of the total market cap of the S&P. Then the Nifty Fifty one-decision stocks took over in the late-1960s/early-1970s and the top 10 holdings jumped to more than 40% of the index.

Concentration would fall below 20% by the end of the 1980s before rising yet again to nearly 30% by the end of the dot-com bubble in the early-2000s. So, relative to the recent past, concentration levels look high, but relative to history, it’s not like we haven’t seen these levels before.

He goes on to discuss the concentration in other developed markets.

 

[Out-to-Lunch]

Thank you for the interesting article!

 

[Montecfo]

The equally weighted SP500 seems a wiser option. It's a two tier market. Handfull of favored names bunched at top and the rest at much lower levels, especially dividend stocks.

 

[Lsbcal]

The equally weighted SP500 seems a wiser option. It's a two tier market. Handfull of favored names bunched at top and the rest at much lower levels, especially dividend stocks.

RSP (equal weight) has trailed SPY (SP500) over 5 years, up 59% versus 86%. Since 2004 they are about the same (362% vs 341%). Will depend a lot on how AI plays out in these various large cap companies. And I am sure that I am unsure.

My decision recently has been to move some large growth and SP500 into a 50/50 mix of midcap value and small cap value.

 

[bloom2708]

I want to go where the market goes.

Going not where the market goes seems to not be a great strategy.

 

[Montecfo]

That the equal weight has under performed the cap weighted IS the point. That's how the SP500 got so top heavy.

Personally I do not own either. I do own some of the mag 7 but not Tesla for example.

I have also moved more into value and small value.

 

[Lsbcal]

The market has gotten more concentrated in tech for sure. But maybe that is in anticipation of earnings improvements and growth prospects. Or "maybe" it is the madness of crowds. I don't know how much is rational versus irrational. Apparently there is no way to prove that either way.

The article in the OP tells us this is not unusual and maybe not even irrational.

 

[Montecfo]

yes it is true.

The mag 7 types have very strong fundamentals. So this is not like the dotcom or nifty fifty.

And some are in fact cheap relative to future earnings and prospects-just see the recent 20% move from META on earnings.

Which is why I maintain exposure but not at the SP500 level.

 

[mathjak107]

The equally weighted SP500 seems a wiser option. It's a two tier market. Handfull of favored names bunched at top and the rest at much lower levels, especially dividend stocks.

going back as far as i could with an equal weighted etf like RSP. which was 2004 , a regular weighted s&p fund like vfiax performed the same the last 20 years and better from 15 years on

the equal weight took a 100k and grew it to 634,628 , a cagr of 9.68%

regular s&p fund grew to 634,534 , a cagr of 9.67%

MEH , no advantage shown and that includes the great recession of 2008 and covid shut down as well as falling rates and rising rates


jumping to 2010 as a start date

equal weight is 502,309 12.22% cagr

conventional weighted 559,503 13.39% cagr

so again i fail to see your preference as meaningful

let’s try 2015 as a start date

equal weighted 239,041. 9.71% cagr

conventional weighted 273,263 11.82 cagr

so again i fail to see your preference as meaningful

let’s try from 2020

equal weighted 146,565 10.03% cagr

conventional weighted 157,362 12% cagr


YOU GET THE POINT , there has been no reason for 20 years to think that buying an equal weighted index was better then the standard one , and in fact hurt you by going against conventional weighting

 

[audreyh1]

The concentration cycles through different companies and different sectors over long periods of time. There is a major changing of the top players every decade - sometimes even a complete replacement.

 

[Sojourner]

I found this very interesting (and surprising) chart in a PDF report on the S&P Global website. Seems that equal weighting has done really well over the past twenty years!

The full report is here: https://www.spglobal.com/spdji/en/documents/research/research-more-equal-than-others-20-years-of-the-sp-500-equal-weight-index.pdf

 

[mathjak107]

well according to portfolio visualizer the numbers i posted are the results and equal weighting did not do as well

 

[Lsbcal]

I found this very interesting (and surprising) chart in a PDF report on the S&P Global website. Seems that equal weighting has done really well over the past twenty years!

The full report is here: https://www.spglobal.com/spdji/en/documents/research/research-more-equal-than-others-20-years-of-the-sp-500-equal-weight-index.pdf

Are these just index results? I favor only what is investable which includes fees. That is why I looked at RSP and SPY since 2004.

 

[mathjak107]

Are these just index results? I favor only what is investable which includes fees. That is why I looked at RSP and SPY since 2004.

index results alone don’t include not only fees but dividends. i only use etfs for calculating like rsp and voo

 

[mathjak107]

RSP (equal weight) has trailed SPY (SP500) over 5 years, up 59% versus 86%. Since 2004 they are about the same (362% vs 341%). Will depend a lot on how AI plays out in these various large cap companies. And I am sure that I am unsure.

My decision recently has been to move some large growth and SP500 into a 50/50 mix of midcap value and small cap value.

my findings exactly ….

 

[Montecfo]

going back as far as i could with an equal weighted etf like RSP. which was 2004 , a regular weighted s&p fund like vfiax performed the same the last 20 years and better from 15 years on

the equal weight took a 100k and grew it to 634,628 , a cagr of 9.68%

regular s&p fund grew to 634,534 , a cagr of 9.67%

MEH , no advantage shown and that includes the great recession of 2008 and covid shut down as well as falling rates and rising rates


jumping to 2010 as a start date

equal weight is 502,309 12.22% cagr

conventional weighted 559,503 13.39% cagr

so again i fail to see your preference as meaningful

let’s try 2015 as a start date

equal weighted 239,041. 9.71% cagr

conventional weighted 273,263 11.82 cagr

so again i fail to see your preference as meaningful

let’s try from 2020

equal weighted 146,565 10.03% cagr

conventional weighted 157,362 12% cagr


YOU GET THE POINT , there has been no reason for 20 years to think that buying an equal weighted index was better then the standard one , and in fact hurt you by going against conventional weighting

Are you talking to me? I never made the point that equal weight had performed better historically.

My point was one I expected to be far more useful: folks concerned about the concentration in the cap-weighted SP500 may want to consider the equal weight approach.

And that NOW many stocks outside the mag7 appear to be reasonably valued from an earnings perspective.

I do not see anything to really debate there as I make no prediction. Simply an observation.

 

[mathjak107]

Are you talking to me? I never made the point that equal weight had performed better historically.

My point was one I expected to be far more useful: folks concerned about the concentration in the cap-weighted SP500 may want to consider the equal weight approach.

And that NOW many stocks outside the mag7 appear to be reasonably valued from an earnings perspective.

I do not see anything to really debate there as I make no prediction. Simply an observation.

yes , there is no evidence in performance that equal weighting is wiser . in fact for 20 years it didn’t do as well as conventional weighting.

so not sure why you say it’s wiser when for 20 years if has done little to support that

 

[Montecfo]

yes , there is no evidence in performance that equal weighting is wiser . in fact for 20 years it didn’t do as well as conventional weighting.

so not sure why you say it’s wiser when for 20 years if has done little to support that

Maybe reread my posts. Notice I did not say anything about history.

Feel free to view things differently. The future is not known.

 

[Lsbcal]

The link to the article in the OP discusses some of the history of over weighted SP500 largest cap stocks. It seems to make the point that this is not unusual. It is not trying to go beyond this to suggest alternatives strategies.

In recent years there have been plenty of articles suggesting emerging markets are about to take off or are a great diversification. Value stocks proponents have not done so well either.

For me personally I will still need some diversification. I also have a methodology which can swing towards value and international when they start to show some sustained better performance. Being agnostic works for me.

 

[Route246]

yes it is true.

The mag 7 types (except TSLA) have very strong fundamentals. So this is not like the dotcom or nifty fifty.

And some are in fact cheap relative to future earnings and prospects-just see the recent 20% move from META on earnings.

Which is why I maintain exposure but not at the SP500 level.

Regarding dotcom/nifty-fifty, I believe the 5 of the Mag 7 have had extensive public layoffs and 6 of the Mag 7 have back-to-work programs in place recently. NVDA and APPL have not had layoffs and NVDA does not have a back-to-work program in place. TSLA does not have strong fundamentals and probably a questionable member.

Layoffs are an indicator of a finance-influenced corporate discipline, especially when it is done to appease shareholders by cleaning house. Hiring remains strong at all 7.

Just these characteristics differentiate these from dot-com irrational exuberance. But, it is a form of exuberance that must be dealt with carefully, no doubt about that.

 

[mathjak107]

Maybe reread my posts. Notice I did not say anything about history.

Feel free to view things differently. The future is not known.

remember , the thinking , THIS TIME IS DIFFERENT, has been the most costliest words in our language .


when it comes to investing the best path to take is what was , what is , and what stands a reasonable chance of continuing…

betting that this time is different has been betting against the house.

personally i see no reason to buy an unweighted over a weighted index but if one does then let them do it.

 

[Closet_Gamer]

I've been concerned about the concentration for of the various indices for a while.

About two years ago I bought some VTV to start putting some money into something that wasn't so hinged to the top, highly concentrated companies.

I'm glad I didn't put a lot of money there! Making a big change to my portfolio to get away from the major indices would have been a mistake.

But for all that, I remain concerned about concetration.

 

[TheWizard]

If you'd like to take better advantage of the top 7 or 10 stocks in the S&P 500, then I would recommend the MegaCap Growth index ETF MGK.
It did quite well last year compared to VOO...

 

[TickTock]

Different market segments will out-perform over different time periods. How to tell in advance? My crystal ball is broken.

We shifted from a small and value tilt towards broader market indexes along with less equity/more fixed income (80/20 -> 60/40) as we approached RE. Partially this is to simplify, partially it is to remove the tilts. Went from S&P500 to US Total. Still hold REITs as part of the equity AA.