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Will the Mega Cap Dominance Continue?

The largest few companies in the US have dominated performance over the past 4-5 years. The recent Covid-19 pandemic has intensified this trend in recent months. In particular, the largest five companies the in US (AAPL, MSFT, AMZN, GOOGL, & FB) now account for roughly 23% of the entire S&P 500. Applied Finance pulled data for the S&P 500 going back to September 1998 to look at the relative concentration of the largest five firms against the index. The results show a record-breaking and steep run-up in recent years, with a sharp increase in recent months as the largest firms have been relatively unscathed by the Covid-19 crisis.

Market cap of largest 5 firms in the S&P 500 relative to total market cap of the index.
Source: Applied Finance Research Database Monthly data 9/30/98 – 6/20/20

Additionally, Applied Finance looked at return data for the Largest 5 Firms vs. the Other 495 in the S&P 500 over time. Using monthly rebalancing from 9/30/98 – 6/31/20, a dramatic shift occurred around the end of 2014. Prior to this period, the largest five firms tended to underperform relative to the other 495 firms in the S&P 500 by roughly 61bps per month. From 2015 onward, the largest five firms have outperformed the other 495 by 114bps per month.

Monthly rebalancing, equal-weighted monthly returns in baskets
9/30/98 – 12/31/14 and 12/31/14 – 6/30/20.

The trend of concentration also occurred during the late 90’s Tech Bubble in the US, with the largest five firms peaking at around 18% of the total S&P 500. Today, the Valuations of the largest five firms are much more reasonable than in 2000. However, the rapid rise of concentration in the index is something that investors should watch. Applied Finance certainly favors an equal weighting approach to portfolio construction over market cap weighting, especially given these recent trends.


  • John Holt, CFA joined Applied Finance in 2014 and is involved in the management of both quantitative strategies and analyst driven strategies.


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