G&S PERSPECTIVES

MARKET CONCENTRATION

The S&P 500 index is often referred to as “the market” in most households and by the various media outlets, but it is important to know that not all companies in the index have the same weighting. In fact, the 5 largest companies in the S&P 500 currently make up approximately 23% of the index compared to a historical average of around 13%. If we look at the past 30 years; the last major spike in Top 5 concentration was around the year 2000 at 18%, right around the time of the Tech Bubble.

MARKET CAP OF 5 LARGEST COMPANIES AS SHARE OF S&P 500 INDEX (%)

Source: Compustat, Goldman Sachs Global Investment Research, and GSAM as of October 31, 2020. Chart shows the market capitalization of the 5 largest companies in the S&P 500 Index (Apple, Microsoft, Amazon, Facebook, and Alphabet) as a percent of the total market capitalization of the Index. Past performance does not guarantee future results, which may vary.

If we carve out the Top 5 companies (Apple, Microsoft, Amazon, Facebook, & Google) from the S&P 500, we can see that combined they rose around 38% YTD and the remaining 495 companies in the index averaged -6% YTD. In other words, to keep up with the market in years like this you would need to match the concentration of the underlying index by having a large portion of your portfolio in these 5 companies.

INDEX YTD RETURNS AS OF 10/31/2020

Source: Bloomberg and GSAM as of October 31, 2020. Chart shows the year to date performance of the S&P 500 Index, the 5 largest companies in the S&P 500 on a market capitalization weighted basis (Apple, Microsoft, Amazon, Facebook, and Alphabet), and the rest of the index. Past performance does not guarantee future results, which may vary.

G&S Perspective: At G&S Capital, most of our strategies have exposure to these Top 5 in one form or another, but portfolio diversification remains a key component to building and maintaining a long-term focus when it comes to investing. 

“Here is part of the tradeoff with diversification. You must be diversified enough to survive bad times or bad luck so that skill and good process can have the chance to pay off over the long term”

― Joel Greenblatt,
American Investor

At G&S Capital, we build dynamic portfolios and risk management strategies for each of our clients. Our client projects are led by knowledgeable, dedicated financial planners and supported by the G&S Capital team of specialists to provide personalized portfolios, unparalleled service, and independent advice