Unprecedented concentration

The result of the success of the magnificent 7 stocks we discussed in our Daily yesterday is that it brought the level of US equity market concentration to nearly unprecedented levels. By investing in the overall market via ETFs that reproduce the market-cap weighted index, investors now buy de facto the 10% biggest stocks representing more than 70% of the overall US equity market capitalization. This shows that investors should start to appreciate the merits of active investing again that may in the end be less risky than investing into a concentrated index composed of quality, but highly valued, tech stocks.