The top 10 companies in the S&P 500 now account for 39.4% of the entire index. Of those 10, the bottom three, Tesla (1.7%), Berkshire Hathaway (1.7%) and JPMorgan Chase (1.5%) are not tech stocks. The top seven, accounting for 34.5% of the index are tech stocks. It is a similar tune with the Global Stock Index, with the same top ten companies making up 27.1% of the index.
I have conversations with clients recently who are getting anxious with the over concentration of the indexes and have asked if there are indexes that are ex tech that they invest in.
Economic analyst Hendrik Bessembinder looked at the thousands of publicly traded companies in the US and the returns that each of them produced. His findings are pretty shocking. He found that over the period of 1926 – 2022, just 72 companies made up 50% of the returns. Take a second to think about that. Of the diversified portfolios that we invest in, most of our returns will come from a select number of stocks.
We do not know what companies will be the main sources of growth int he future. But we do know that being invested in the market leaders is a good place to start. The market cap of the top ten companies is $23.33 trillion. The market cap of remainder of the S&P 500 is $37.7 trillion. The total market cap of the EuroStoxx 50 is just $4.011 trillion. Why would you not want to invest in the top ten companies?
We invest in diversified portfolios because we do not know who the best performing stocks are going to be. Instead of looking for a needle in a haystack, we buy the haystack. The creators of indices like MSCI, FTSE and S&P will use their formulas and criteria to create and index that represents the stock market. They also create what weighting each company should have. It is not a simple thing to do. We accept that the do a good job in what they do.
So what makes us think that we can do better than them in deciding that we should take out some companies…and the biggest companies in the indexes too!!! What makes us think that of the small amount of companies that generate most of the return, that the biggest earners at the moment aren’t the ones to create long lasting wealth?
Just buy the index and accept there will be times of over concentration of stocks at times. It won’t always be that way and the index will alter the weighting as it happens. If you would prefer less concentration, you can easily diversify this risk away. Funds like the Dimensional World Equity fund has 14,174 different holdings and the top ten holds 11.88% of the overall portfolio. You will also have to accept the lower returns to go with the lower risk.
But don’t try to second guess the market.
Steven Barrett
22 September 2025