One way of visualising this impact is to compare the performance of the market cap weighted FT Wilshire 5000 index with the equal weighted equivalent index. We show in Exhibit 1 that while the headline (market cap) index has returned 13.6% in H1 2024 the equal weighted index has declined -0.8%.
Exhibit 1: Comparing the FT Wilshire 5000 market cap and Equal Weighted index YTD
In fact, the top 10 contributors (the Nifty 10) generated over two-thirds of the H1 2024 market return of 13.6%
The top 10 contributors to the aggregate return of 13.6% for the FT Wilshire 5000 index are heavily skewed to the Magnificent 7 technology stocks (in particular Nvidia) but also include Eli Lilly and JP Morgan.
Exhibit 2: The Nifty 10 stock return contributions for H1 2024
Getting vertigo over the elevated concentration levels
The sustained outperformance of the Nifty 10 has pushed market concentration levels (the combined weighting of the top 10 stocks) to 31.4% significantly higher than the 20.2% peak witnessed during the dot com bubble in 2000.This is triggering concern about the sustainability of this degree of concentration.
Exhibit 3: Combined weighting of the top 10 stocks within the FT Wilshire 5000 index
However, compared to other markets, US concentration levels don’t look so extreme.
In Exhibit 4 we show the combined weighting of the top 10 stocks across several markets (using our Global Equity series data). If concern is to be raised about elevated concentration levels the UK and China rather have much higher exposure to the top 10 stocks compared to the US.
Exhibit 4: Combined weighting of the top 10 stocks across regional equity indexes
Source: Wilshire Indexes. Data as of June 30, 2024.
