Powerful concentration

Great chart from André Huwiler : 35 cents of every dollar invested in the S&P 500 go into just seven companies. The smallest 401 companies together account for only 23.5%. An extraordinary concentration, but also an interesting consequence of the massive shift towards passive investing.
The more these companies outperform, the larger their weight in the index becomes. And the more money flowing into index funds is allocated to them. A powerful mechanism, particularly when valuations are rising. For active managers, this creates an interesting dilemma. Not owning these seven companies has become a considerable bet against the benchmark. Yet owning them at any price is hardly a sound investment strategy either.
At ECP, we have always distinguished between investment risk and benchmark risk. The two are not necessarily the same. The real question is whether the next decade will reward the same seven companies as generously as the last one. History suggests that market leadership rarely remains unchanged.