Yes, the title and image are a corny reference to Lord of the Rings. So, despite the majority (about two-thirds) of the companies in the S&P 500 producing negative returns in 2020, the index overall has a positive year-to-date return. This is due, in part, to its top five holdings: Apple, Microsoft, Amazon, Alphabet, and Facebook.
These five companies (out of 505 companies) now represent more than 25% of the S&P 500’s total market capitalization, and they are having a great year.
These five charts below are pretty amazing.
Although this might seem concerning, it’s really nothing to get worked up about. If you look back over the last 40 years the concentration of the top 10 stocks has ranged from 17.5% to 26%. It’s just the nature of a market capitalization-weighted index – you are bound to have concentration at the top.
Who knows if these companies will be able to continue their dominance from a stock price perspective. If they can’t, then their weightings in the index will decline over time and you’ll have less exposure to them. And inevitably there will be five new companies at the top of the mountain. Some of which haven’t even been created yet.
Source: Graphic by Visual Capitalist