An index in name only

Technology now represents more than one third of the S&P 500, while the ten largest companies account for roughly 40% of the index. Nvidia, Apple and Microsoft alone represent close to one fifth. By contrast, the 250 smallest constituents combined weigh less than 10%.

The S&P 500 may contain 500 companies, but its performance is increasingly driven by a handful of AI-linked giants. Buying an index fund therefore no longer necessarily means buying a broadly diversified portfolio. It also means accepting significant exposure to one sector, one investment theme and a very small number of companies.

This concentration has worked exceptionally well while mega-cap technology has outperformed. It could become a vulnerability if earnings expectations disappoint or market leadership broadens.

How are you preparing your portfolio for a market increasingly driven by only a handful of companies?