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As of July 31, 2020, the Standard and Poor’s 500 Total Return Index® (including dividends) was up 2.49% year-to-date. Given the speed and depth of the drop to the March 23 low, it might seem like a minor miracle that we have positive return year-to-date at all.

First, a quick refresher on the index. The S&P 500 is a weighted index of the 500 largest stocks by market capitalization (“market cap”). Market cap is simply a company’s stock price multiplied by its number of shares outstanding. Whereas the Fortune 500® is a ranking of the top 500 companies by revenue, the S&P 500 ranks companies by stock market weight.

Sources of Return

Looking more closely at the index’s sources of return reveals something surprising. The five largest companies by market cap on December 31, 2019 were, in order: Apple, Inc., Microsoft Corp., Alphabet, Inc. (Google’s parent), Amazon.com, Inc., and Facebook, Inc. The July 31, 2020 ranking was identical with one difference: Amazon.com, Inc. had moved ahead of Alphabet, Inc. Below are the averages of the 12/31/19 and 7/31/20 weights for these stocks:

  • Apple: 5.48%
  • Microsoft: 5.11%
  • Amazon: 3.88%
  • Google: 3.22%
  • Facebook: 2.05%

On average, these 5 companies represented 19.74% of the S&P 500’s weight, year-to-date through July 31. The remaining 80.26% of the index was spread among the 495 next largest stocks. As of July 31, 2020, these five stocks represent 22.5% of the index, which suggests significant concentration.

The weighted average return story is even more stark. Through July 31, the weighted average year-to-date total return for these five companies was 7.65%. In other words, if at the beginning of the year you had left approximately 80% of your money in cash and invested the remaining 20% in these 5 stocks, you would have outperformed the broad index by 5.16% (7.65% – 2.49%). Put differently, the other 495 stocks had a average return of -5.16% for the period.

Perhaps strangest of all: Apple’s weighted total return for the period was 2.49%: exactly the same as the S&P 500’s year-to-date return. To use the same analogy as above, if you had left 94.52% of your money in cash at the beginning of the year and maintained an average weighting in Apple of merely 5.48%, you would have matched exactly the return of the index as a whole through July 31.

One stock has accounted for 100% of the S&P 500’s total return year-to-date. The remaining ~499 stocks’ weighted total returns sum to zero. In some cases, the indexes are not indicative at all of how the average stock has performed over a given period.


The S&P 500 Index is one way of judging how stocks are performing generally. Its market cap weighting is superior to the Dow Jones Industrial Average® price weighting, and its sector weights are broader than the technology-heavy NASDAQ 100 Index®. However, it is also clear that the return sources for the index have become extremely concentrated – much more so than most investors understand – which makes it difficult to use the indexes as a gauge for how many, let alone most, stocks have performed.

In the following blog, we describe other reasons why we do not passively invest, but for now we just point out that concentration is very likely a problem waiting for the right catalyst.


Past performance is no guarantee of future results.  Peloton owns the common stock of Microsoft Corp. (MSFT), Alphabet, Inc. (GOOGL), and Facebook, Inc. (FB) for certain clients. Peloton does not own the common stock of Apple, Inc. (AAPL), or Amazon.com, Inc (AMZN). For a complete list of Peloton equity holdings, please refer to our current 13F filing.

Investing involves risk, including possible loss of principal.  Diversification may not protect against market risk or loss of principal.  The opinions expressed above should be construed as neither investment advice nor a solicitation to buy or sell securities.  Actual investor results may vary.

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