There are mega-cap stocks. And then there’s everything else.
In a prior article, I talked about how the S&P 500 is extremely top-heavy and presents a distorted view of the market. There’s also too much concentration risk with just a handful of mega-caps responsible for the index’s gains.
The chart below (created May 2) compares the YTD performance of the market-cap weighted S&P 500 index (SPY) vs. RSP, an equal-weighted S&P 500 index.
The two lines diverge because mega-caps are significantly outperforming nearly every other stock. This means that the broad market isn’t as strong SPY’s returns would have you believe.
I’m not saying that you should run out and sell your shares of SPY or any other market-cap weighted index. I’m simply presenting current conditions and risks that investors may not be aware of:
- SPY is more top-heavy than ever with mega-cap stocks responsible for nearly all the gains.
- SPY’s performance is not reflective of all the stocks in the S&P 500.
- SPY’s current makeup exposes investors to significant concentration risk.
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