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Video: Are YouConcentratingToo Much?
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Video: Are You Concentrating Too Much?​

Brad Neuman's Photo

Brad Neuman, CFA;

Senior Vice President
Director of Market Strategy

Equity market capitalization is more concentrated now than it has been in over half a century, creating important implications for investors, according to Alger’s Director of Market Strategy, Brad Neuman.

​​​​​​​​​​​​​​​​



​In this video, Alger Director of Market Strategy Brad Neuman discusses the concentration within major equity market indices and the impact on company valuations and portfolio management.​


BRAD NEUMAN: Equity market capitalization is more concentrated now than it has been in over half a century, creating important implications for investors. I’m Brad Neuman, Alger’s Director of Market Strategy.

The top five companies in the S&P 500 comprise approximately one-quarter of the index. That is much higher than the 14% average since 1990. Within the Russell 1000 Growth Index, the market concentration is even more stark – the top five largest companies comprise over 40% of the index, nearly double the 21% average since 1990.

A significant driver of this trend is these companies’ fundamental success. In the past decade, the top five weighted stocks in the S&P 500 have grown their share of earnings more than 30%—from under 12% to over 15%. But that is only part of the story. These large companies today have much better business economics than their cousins of decades past. For example, while AT&T was a top constituent for many decades, it reported only about a 3-5% return on assets. In fact, all of the top S&P 500 constituents in 1990 had return on assets of 8% or lower. This pales in comparison to Apple, Microsoft, or Google’s return on assets today, which ranges from the teens to the mid-20 percent range. Generating stronger return on capital may boost valuations and in turn market capitalization related weightings.

While fantastic profitability and strong growth are good reasons that a handful of mega-cap stocks dominate equity indices today, the last 50 years of data shows that it is unlikely that concentration will increase much more. Furthermore, the era of companies persistently holding a top position in index weightings for decades, like AT&T was able to do, is probably behind us. That’s because while the profitability and return on capital of companies are higher than ever, the period for which they earn those high returns is shrinking. In the late 1970s, companies in the S&P 500 had an average tenure of 30-35 years; today it’s closer to 20 years and likely to fall in the future, in our view. We believe this is because the pace of innovation is accelerating. For example, the speed at which companies can scale up and disrupt industries is increasing.

Now, if change is accelerating, it may make new and upcoming companies that can become the leaders of tomorrow even more attractive. Importantly, these small and mid-cap growth companies are historically inexpensive.

If some of these companies do go on to challenge the old guard of mega-cap companies in the years to come, it could prove to be quite an opportunity for investors.

For more on this topic, please see the recent paper we published entitled “Are You Concentrating Too Much?​” which is available on the Insights page of the Alger.com website.

Again, I’m Brad Neuman, Alger’s Director of Market Strategy. Thanks for watching.​


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Source: S. Patrick Viguerie, Ned Calder, and Brian Hindo, “Innosight 2021 Corporate Longevity Forecast,” May 2021.

The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of January, 2024. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Local, regional or global events such as environmental or natural disasters, war, terrorism, pandemics, outbreaks of infectious diseases and similar public health threats, recessions, or other events could have a significant impact on investments. Investing in companies of small and medium capitalizations involves the risk that such issuers may have limited product lines or financial resources, lack management depth, or have limited liquidity. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments. Investing in innovation is not without risk and there is no guarantee that investments in research and development will result in a company gaining market share or achieving enhanced revenue. Companies exploring new technologies may face regulatory, political or legal challenges that may adversely impact their competitive positioning and financial prospects. Also, developing technologies to displace older technologies or create new markets may not in fact do so, and there may be sector-specific risks as well. As is the case with any industry, there will be winners and losers that emerge and investors therefore need to conduct a significant amount of due diligence on individual companies to assess these risks and opportunities.

Important Information for US Investors: This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund and ETF shares. Fred Alger & Company, LLC serves as distributor of the Alger mutual funds.

Important information for Investors in Israel: This material is provided in Israel only to investors of the type listed in the first schedule of the Securities Law, 1968 (the “Securities Law”) and the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995. The Fund units will not be sold to investors who are not of the type listed in the first schedule of the Securities Law.

Important Information for UK and EU Investors: This material is directed at investment professionals and qualified investors (as defined by MiFID/FCA regulations). It is for information purposes only and has been prepared and is made available for the benefit investors. This material does not constitute an offer or solicitation to any person in any jurisdiction in which it is not authorised or permitted, or to anyone who would be an unlawful recipient, and is only intended for use by original recipients and addressees. The original recipient is solely responsible for any actions in further distributing this material and should be satisfied in doing so that there is no breach of local legislation or regulation. Certain products may be subject to restrictions with regard to certain persons or in certain countries under national regulations applicable to such persons or countries. Alger Management, Ltd. (company house number 8634056, domiciled at 85 Gresham Street, Suite 308, London EC2V 7NQ, UK) is authorized and regulated by the Financial Conduct Authority, for the distribution of regulated financial products and services. FAM and/or Weatherbie Capital, LLC, U.S. registered investment advisors, serve as sub-portfolio manager to financial products distributed by Alger Management, Ltd. Alger Group Holdings, LLC (parent company of FAM and Alger Management, Ltd.), FAM, and Fred Alger & Company, LLC are not authorized persons for the purposes of the Financial Services and Markets Act 2000 of the United Kingdom (“FSMA”) and this material has not been approved by an authorized person for the purposes of Section 21(2)(b) of the FSMA.

The S&P 500 Index is an unmanaged index generally representative of the U.S. stock market. The Russell 1000® Growth Index is an unmanaged index designed to measure the performance of the largest 1000 companies in the Russell 3000 Index with higher price-to-book ratios and higher forecasted growth values. The Russell 3000 Index is an unmanaged index considered representative of the U.S. stock market. S&P SmallCap 600 Growth Index is an unmanaged index considered representative of small cap growth stocks. S&P MidCap 400 Growth Index is an unmanaged index considered representative of mid cap growth stocks. Bloomberg US Agg Index is a broad-based benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The indices presented are provided for illustrative purposes, reflect the reinvestment of dividends and do not assess fees and expenses that would have the effect of reducing returns. Investors cannot invest directly in any index. The index performance does not represent the returns of any portfolio advised by Fred Alger Management, LLC and actual client results might differ materially than the indices shown.

Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and / or Russell ratings and/or underlying data contained in this communication. No further distribution of​​ Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.

The S&P indexes are a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Fred Alger Management, LLC and its affiliates. Copyright 2024 S&P Dow Jones Indices LLC, a subsidiary of S&P Global Inc. and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

FactSet is an independent source, which Alger believes to be a reliable source. FAM, however, makes no representation that it is complete or accurate. Alger pays compensation to third party marketers to sell various strategies to prospective investors.

The following stocks represent Alger’s firmwide assets under management as of October 31, 2023: Apple Inc., 4.85%; Alphabet Inc., 3.22%; Microsoft Corp., 9.53%; and AT&T, 0%.

​ Fred Alger Management, LLC 100 Pearl Street, New York, NY 10004 / 800.223.3810 / www.alger.com

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ETF Investors

This ETF is different from traditional ETFs.

Traditional ETFs tell the public what assets they hold each day. This ETF will not. This may create additional risks for your investment. Specifically:

You may have to pay more money to trade the ETF’s shares. This ETF will provide less information to traders, who tend to charge more for trades when they have less information.

The price you pay to buy ETF shares on an exchange may not match the value of the ETF’s portfolio. The same is true when you sell shares. These price differences may be greater for this ETF compared to other ETFs because it provides less information to traders.

These additional risks may be even greater in bad or uncertain market conditions.

The differences between this ETF and other ETFs may also have advantages. By keeping certain information about the ETF confidential, this ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETF’s performance. If other traders are able to copy or predict the ETF’s investment strategy, however, this may hurt the ETF’s performance. For additional information regarding the unique attributes and risks of this ETF, please refer to the prospectus.

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