The Story in Markets this Year? One Word - Concentration

Tech companies are big and make a lot of money – not exactly a bombshell. However, the relative size and growth of these familiar tech giants appears to have reached a new level in 2023.

Last week I came across one of the most jaw-dropping statistics of my investing career. As of this June, just 7 companies (Apple, Microsoft, Alphabet, Amazon, NVIDIA, Meta & Tesla) are now bigger than the total US Energy, Materials, Industrials and Financial Sectors combined.

And this immense level of concentration doesn’t just end at size. So far in 2023, just these same 7 stocks accounted for over 100% of the S&P 500’s year-to-date returns (with the remaining 493 companies in the index combining for a -0.25% return on the year).

So just what is an investor supposed to do when faced with one of the most top-heavy markets we have ever seen?

Thankfully for us, we have a wealth of market history to act as our guide. While the current situation is certainly an extreme case, it is actually very common for markets to experience these periods of high concentration. Oftentimes a new technology (or - more accurately - a new narrative around a technology) will take hold in markets. In the late 90s that narrative was the internet and the dot com bubble; in the early 2020s the narrative was cryptocurrency and blockchain; now that narrative force driving markets is artificial intelligence.

The temptation for investors is often to go “all in” during these periods of obviously revolutionary change. And while these technologies and their impact on society are clearly real (you are likely reading this on the internet after all!), the investment returns don’t always follow.

It would be hard to argue that Zoom wasn’t at the epicenter of the seismic shifts in how our society communicates over the past 3 years. And, as you’d expect, the stock saw its price explode from $68.04 at the end of 2019 to nearly $600 in 2020. As of June 1, 2023, you could purchase the same share of Zoom stock for $66.27.

In this market (and every market), remaining diversified and disciplined are the keys to long-term investment success. When you are diversified across global markets, you capture growth wherever it occurs. So when certain tech stocks go up (and up and up) our clients are positioned to benefit from that growth. Similarly, by remaining disciplined (selling high & buying low) when those same tech stocks go down (and down and down…) our clients have “locked-in” a portion of those gains.

Whatever comes next – whether this period of big-tech concentration continues throughout the year or comes to a crashing halt like so many times in the past – our clients can rest assured of our commitment to diversified and disciplined investing. Remaining focused on your financial future, through the concentration of 2023 and beyond.

Investing involves risk. No investment strategy can guarantee positive results. Loss, including loss of principal, may occur. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax or legal advice. Keep in mind that current and historical facts may not be indicative of future results. Diversification is an investment strategy that can help manage risk within a portfolio, but it does not guarantee profits or protect against loss in declining markets.

This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. (C) Twenty Over Ten