IT Domination Marks a New Phase
June 30, 2023
In June 2015, our first Under the Hood publication started a conversation about the content label on your S&P 500 or bond index fund or any index fund, for that matter: what you thought was in it versus the actual composition. The series’ impetus was the arrival of a new phase for indexation: by amassing so much AUM and ever-increasing inflows, it ceased to serve its original function of passive participation in markets, and instead began to influence the composition of the indexes themselves.
That was a debate. Today it’s not. Then, IT companies were two of the S&P 500 Top 10; today, they’re the largest seven. They are now 28% of the S&P 500; in 2015, the Top 10 amounted to only 17%. This marks a new phase for the index, with a new set of factors impacting its character. We’ll start with the extreme concentration at the top of the index, and some touchstones of valuation versus the law-of-large-numbers limitation on the growth prospects of these companies, which is now showing up in revenue and earnings figures.
As always, please do not hesitate to contact us with any questions.
Horizon Kinetics LLC
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