27 June, 2025

S&P 500 Concentration: Diversification in Question

Scroll to
Explore

The Problem

  • The recent rally is driven by just 7–8 mega-tech stocks. The “Magnificent Seven” (Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, Tesla) now make up ≈33% of the total value of the S&P 500.
  • Eight tech companies account for 36% of the index and trade at an average P/E ratio of ≈37× — significantly higher than the rest of the market.

Risks for Institutional Investors

  • Hidden Correlation: Index flows rely on the same handful of drivers; if one big tech stock corrects, it can drag down the benchmark.
  • Valuation Bias: Elevated multiples limit future return potential and increase volatility.
  • Misleading Benchmarking: Active managers are pushed to overweight these names to avoid underperformance, increasing the risk of a crowded trade.

Strategic View (Cordada’s Perspective)

The concentration in public equities highlights the need for alternative assets with independent performance drivers. Latin American private credit — backed by real collateral and strict covenants — offers less correlated, more stable risk-adjusted returns than mega-cap equities.

Share