The Bettr Blog

Looking back at 2023, it has been a highly positive year for your investment portfolio, with all funds demonstrating either excellent or good returns at the time of writing.

However, as in any financial journey, occasional anomalies may arise.

The eagle eyed amongst you will see that the S&P 500 (the US stock market’s main index) has risen incredibly strongly this year.

It is probably not immediately apparent though that a huge part of this growth has come from only a handful of shares.

It is also quite unprecedented that the Top 10 companies by size (Apple, Microsoft, Amazon, NVIDIA etc) now account for over 30% of the S&P 500’s total value.

The question that arises is, can there be too much of a good thing?

While the owners of a S&P 500 index tracker fund may currently appreciate the outperformance, it prompts us to consider whether this trend will continue.

Historical Insights and Research Findings

Dimensional has undertaken some in depth study into this phenomenon.

They have found that as companies grow to become some of the largest on the US stock market, their returns can be impressive.

But you can see in the image below that not long after joining the Top 10 list, these stocks, on average, have lagged behind the market.

Annualised returns in excess of the US market before and after joining the top 10 largest US stocks, January 1927–December 2022

Past performance is not a guarantee of future results.

It’s crucial to recognise that global stock market returns are typically driven by a small number of companies each year. These “big winners” vary annually, making consistent identification of such companies a challenging (read impossible) task.

Diversification as a Strategy

At Brett Investment, we advocate for a diversified approach that indirectly grants you ownership of over 13,000 of The Great Companies of The World, including future leaders.

This strategy offers broad ownership across different countries and sectors, increasing the likelihood of consistently owning the market’s “big winners” without having to identify them in advance.

This diversified approach ensures that you indirectly hold shares in companies like Apple, Tesla, Microsoft, and Amazon, yet your exposure to the current top 10 is far from dominating your portfolio at 30%.

While we acknowledge the continued prosperity of these top-performing companies, our focus is on safeguarding your wealth by avoiding overexposure to them.

A Sensible and Prudent Approach

In navigating the complexities of the market, we believe in adopting a sensible approach to protect your wealth. While we cannot predict the future, we are committed to minimising unnecessary risks and ensuring a well-balanced investment strategy. If you have any questions or concerns, please feel free to reach out.

Disclaimer: This document is intended for informational purposes and no action should be taken or refrained from being taken as a consequence of it without consulting a suitably qualified and regulated person.  It does not constitute financial advice under the terms of the Financial Services and Markets Act 2000. It is not an offer to sell, or a solicitation of an offer to buy, the instruments described in this.

Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investment, when redeemed, may be worth more or less than its original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.