S&P 500 Growing Concentration: What Has Changed and Why It Matters?

Most investors typically treat the S&P 500 index as a reflection of the US stock market. Although the index contains hundreds of companies, it does not necessarily give them equal voices. This means that as some companies grow faster than other, their influence over the benchmark grows too. That raises an interesting question: what companies we are investing in the most while buying the S&P 500 index?

Three decades ago, in 1995, according to Vanguard 500 Portfolio’s 1995 Annual Report^[1], top 10 holdings were companies representing a diverse set of sectors such as Industrials, Energy, Consumer Staples, Health Care, and others, cumulating to approximately 17.7% of the total index weight.

Even only 10 years ago, in 2015, S&P 500 largest holdings included a relatively diverse mix of sectors. The Deutsche S&P 500 Index Fund’s 2015 Annual Report^[2] shows that top 10 index constituents have only 4 technology-oriented companies, accounting for roughly 17% of the total index capitalization. Technology-oriented companies are defined here broadly to include businesses involved in software, semiconductors, digital platforms, e-commerce and electric vehicles, rather than only companies formally classified within the Information Technology sector.

By the end of 2025, the ten largest holdings of the DWS S&P 500 index Fund accounted for more than 40%^[2] which is more than twice their 2015 share. For a more recent look, the same fund’s June 30, 2026, report shows 37.8% in its ten largest holdings with 9 put of 10 companies involved in technology-oriented activity.

The index still provides exposure to a wide range of companies and industries, but its concentration in a small group means that an investor’s portfolio can be more dependent on the performance of individual companies than on the movement of the index as a whole. Holding a large number of stocks does not guarantee diversification, especially when an index is dominated by a few companies or when those companies are all subject to the same economic factors.

Figure 1 — Hypothetical impact of a 20% decline in the top ten holdings

This hypothetical scenario illustrates how rising concentration makes an index fund more sensitive to the performance of its largest holdings. If we assume that the value of the ten largest holdings were to decline by 20%, while the remaining investments remained unchanged, the estimated impact on the fund’s value would increase from −3.46% in 2015 to −8.08% in 2025. Although this example does not reflect an actual market event and is not a forecast of future losses, it clearly demonstrates how higher concentration can intensify a fund’s dependence on the performance of a small group of companies.

Does concentration affect diversification and performance?

S&P 500 index is widely used by many investors around the world, who believe that by investing in it, they are acquiring stakes in hundreds of the biggest and most successful companies of the wealthiest country in the world. However, over the past decade, the share of top 10 largest companies in the index has doubled. The current level of concentration stands at around 40% which is the highest for the last 60 years.

In a capitalization-weighted index, companies that outperform the broader market naturally tend to gain greater index weight. Consequently, rising concentration may be a result of superior performance rather than its cause. However, greater concentration also increases the index's dependence on the future returns of its largest constituents. This situation raises valid concerns regarding index’s diversification and expected performance. To examine the role of weighting, we compare a traditional S&P 500 ETF with its equal-weighted counterpart. While such comparison doesn’t show the isolated performance of top 10 versus the remaining 490 companies, it clearly illustrates how strongly S&P 500 performance depends on its largest holdings.

Figure 2 — Annual relative performance: SPY minus RSP, 2004–2025

This chart compares the performance of the market-capitalization-weighted and equal-weighted S&P 500 strategies, represented by the SPDR S&P 500 ETF Trust (SPY)^[3] and Invesco S&P 500 Equal Weight ETF (RSP)^[4], respectively. Annual relative return is calculated by subtracting the annual return of RSP from the annual return of SPY.

Figure 3 — Three-year rolling relative performance: SPY vs RSP, 2006–2025

To smooth short-term fluctuations, we transform this data into three-year rolling cumulative returns by compounding each ETF's annual returns over three consecutive years, using (1 + R₁) × (1 + R₂) × (1 + R₃) − 1. The difference between the resulting three-year returns is expressed in percentage points. A positive gap indicates a higher total return for the SPY fund over the 3-year period. To determine whether this difference correlates with the level of concentration, we add the DWS fund’s year end combined weight of its 10 largest holdings.

Figure 4 — Three-year rolling relative performance and top-ten concentration, 2006–2025

Although both series exhibit similar trends during certain periods, this relationship should be viewed with caution. The three-year rolling return figures overlap in time, whereas the concentration level is calculated as of the end of each year. Thus, while the chart illustrates how these two metrics have moved together in the past, it does not establish a statistically significant relationship, nor does it confirm that one is the cause of the other.

The most recent example of how two measures can move together cause by an AI rally started in 2023. The capitalization-weighted index has outpaced the equal weighted one due to a strong performance of several technology-related companies. Since both relative performance and concentration have increased, this suggests that the largest companies have been key drivers of the outperformance of the market-cap-weighted index. Their strong returns have also contributed to an increase in their index weight. However, the chart alone does not establish a direct causal link.

The downturn of 2022, caused by various factors such as Russia’s invasion of Ukraine, high inflation, monetary tightening, etc, provides a similar example but in the opposite direction. During this period, both top 10 concentration and SPY-RSP relative performance declined, showing that this time index’s largest holdings contributed to the traditional S&P 500 underperformance. However, it is worth to mention one more time that this is an observed co-movement and does not establish a statistically significant relationship or causality.

In both 2021 and 2022, equal-weighted ETF has been outperforming, but in different conditions (see Relative Performance chart). Since both SPY and RSP funds increased in 2021 whereas declined in 2022, this means that RSP had a greater return but a lower loss in respective years. Equal weighting distributes exposure more evenly across individual stocks, reducing dependence on biggest players, which in turn provides better diversification and stability. However, it also does not prove that RSP has lower volatility, smaller losses, or better performance in every period.

A different perspective come from the S&P 500 Top 10 Index with that of the S&P 500 Ex-Select Tech Top 10 Index. Both indexes were launched in 2023, meaning that their earlier performance is based on hypothetical back-tested data. Their published historical data^[5] shows that over less than a decade the index of ten largest companies had a twice bigger annual return than the second index. Consequently, looking at cumulative returns, investors who bet on largest companies could have earned about more than twice more over the over the same period than those who invested in the rest of the companies.

It is important to note that these 2 indexes are not a precise division between ten largest companies and the other 490. The Ex-Select Tech Top 10 index excludes ten major companies selected from specific technology-related industries and this list does not necessarily align perfectly with the ten largest companies in the S&P 500 index. Nevertheless, because so many recent market leaders have technology-oriented businesses, the comparison is useful as an illustration to what extent market performance has been driven by a relatively small group of largest players.

Does High Concentration Signal Future Returns?

Historical performance differences tell us what happened in the past, but they do not by themselves predict future movements.

In contrast to these observations, research by Hartford Funds^[6], which analyzed data from 1965 to 2025, examined the performance of 490 companies (excluding the 10 largest) in relation to the level of capital concentration within those 10 leading firms. The findings indicate that, over the subsequent five-year period, the shares of these 490 companies outperformed those of the 10 largest firms: in 88% of cases when the concentration level was 20–30%, and in 84% of cases when the concentration level reached 30% or higher.

Another research conducted by S&P Dow Jones Indices^[5], which covers the period from 1965 to 2025 found a weak positive statistical correlation between the concentration of assets in the top 10 companies and the price performance of the S&P 500 index. However, this relationship has not remained consistent throughout the period under review. While there were times when both metrics rose together, such as in the late 1990s and early 2020s, there were also periods when the level of concentration and the index’s returns moved in opposite directions.

A further important question is whether increasing market concentration is accompanied by a rise in earnings. According to Hartford Funds^[6], the largest US companies’ weights have increased faster than their relative share of earnings, resulting to a widening gap. This suggests that market concentration should be assessed not only by the size of the companies, but also by taking into account their valuation and financial performance.

Is the US stock market an exception?

Elevated concentration is not unique for US and its stock market is far from being the most concentrated market in the world. In reality, it is not among the leaders by this metric and, according to MSCI country indexes^[7], there are a lot of countries with much more concentrated stock markets than in the United States such as China, Canada, Taiwan, South Jorea, United Kingdom, France, Germany, and many others.

Indeed, the US stock market is the largest in the world, but the vulnerability stems not so much from the absolute market cap of these companies as from the degree to which market leaders are concentrated relative to other participants. For instance, according to MSCI data, as of September 30, 2026, the 10 largest constituents in the South Korean stock market accounted for nearly 80% of the total index weight while TSMC alone respresented 54% of Taiwan stock market index.

What Does This Mean for Investors?

Over the past decade, the S&P 500 has become substantially more concentrated in a small group of mostly technology-oriented companies. While their strong performance has driven index’s growth, it also increased its dependence on their future success.However, history shows that market leadership can change unexpectedly, meaning that high concentration alone is not a reliable predictor of future returns.

For investors, the key takeaway is that holding hundreds of companies does not necessarily mean having a balanced distribution of capital. Factors, such as concentration, overlapping holdings across investments, and exposure to similar risks all affect the portfolio diversification.

What matters is not simply how many companies an investor owns, but rather the extent to which it depends on individual companies and whether the level of exposure aligns with their expectations and risk tolerance.

Methodology & Limitations

Historical concentration: Figures are based on S&P 500-tracking fund holdings rather than official index weights. The 1995 observation comes from Vanguard, while later observations come from Deutsche/DWS. Minor differences between fund holdings and index composition may affect comparisons.

Performance analysis: SPY and RSP returns reflect differences in weighting methods, rebalancing, and fund expenses. Three-year rolling observations overlap and are not statistically independent.

International comparison: MSCI country indexes do not necessarily represent entire national stock markets. Differences in index composition and methodology may affect comparability.

Historical results: Past performance and observed relationships do not necessarily predict future market behavior.