The five largest U.S. companies – Alphabet, Amazon, Apple, Facebook, and Microsoft – now make up 14% of the Russell 1000 Index and over 15% of the S&P 500 Index.

That level of index concentration could have significant implications for investors:

  • With approximately 50% of the assets invested in large-cap core mutual funds now in passive products that mirror indices – far more than ever before – we believe a greater number of investors are exposed to the risk of a decline in any one of those top five stocks.
  • In past periods of peak concentration, the top five stocks have significantly underperformed in the subsequent 12- to 24-month period.
  • Historically, peak concentration levels have also signaled a turn in the market. Investors can ask if current concentration levels may indicate that, after nine years of outperformance by growth stocks, the market may be about to rotate to value stocks.

Read the full paper.