The Power of the “In” Crowd

No doubt you may have seen the chart below showing the outsized impact that a handful of tech names have had on the performance of the S&P 500. So, does that mean that the remaining 495 names in the S&P 500 are bad companies? Of course not. But it does show what happens when a handful of names make up 21% of the total market cap of the index.

Toothless Large Caps

Source: FactSet Research Systems Inc., 12/31/2014 to 12/31/2019
FANG stands for Facebook, Inc., Amazon.com, Inc., Netflix, Inc., and Google (Alphabet Inc.).
All indices are unmanaged. It is not possible to invest directly in an index.
Past Performance does not guarantee future results.


Now, fast forward to a market where investors turn their focus to attractive valuations and overlooked businesses that are producing bottom-line growth. Under that scenario, just a 5% reallocation from large caps in the Russell 1000 with its $31 trillion market cap, to the small cap universe with just $2.1 trillion in aggregate market cap, could drive outsized returns from an asset class starving for attention.  
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Author

Michael Kops

Kops is a Vice President and Partner. He has 16 years of industry experience, 10 at Heartland.

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