S&P 500 Risks in Mega-Cap Bias, Energy Underweight

May 13, 2022

Using an S&P 500 tracker for diversification? Consider that the 10 largest exposures in the Index totaled 30% of its market cap as of year-end 2021. The risk: what if the source of positive returns is outside of these mega-cap companies, or outside the Index altogether?
Consider that Energy, though pivotal to the economy, had only a 2.7% weight in the S&P 500 at the end of 2021. Despite a dramatic rise in the stock price for those positions, the low starting exposure has limited the positive impact on overall Index performance. And the largest positions, mostly tech companies, which drove positive performance for so long, can drive negative performance when conditions change.

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