The world’s biggest companies keep getting bigger, with six tech stock trillionaires and the top 10 US companies now accounting for a third of the S&P 500′s total market value.
The top 10 accounted for less than 20 per cent of the index in 2015, so should investors be worried by this increased concentration?
No, says BMO strategist Brian Belski. He says stocks “held up just fine” in prior periods that mirror today’s market composition, with other companies taking the baton when mega-cap performance began to falter. That’s echoed by Ritholtz Wealth Management’s Ben Carlson, who notes there have been various other periods where 10 stocks accounted for a third or more of the US market.
Furthermore, it’s “perfectly normal” for a small number of huge companies to dominate, with Carlson saying six of the G7 markets are “far more concentrated” than the US.
True, but the other G7 countries are relative minnows in terms of market capitalisation. In contrast, the US dominates the global market like never before. US stocks account for 63 per cent of the MSCI All-Country World Index.
Even more notably, nine of the top 10 US stocks are tech stocks, and these nine companies account for 19 per cent of the aforementioned index. Global indices are becoming less diversified. We are all technology investors now.
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