Is the S&P 500 over-concentrated?
Mark Tovey is a finance journalist with bylines in The Guardian, The Motley Fool, and more. He digs into data and FOI-based investigations, and makes finance easier to understand.
Last updated 8th May 2026
11 min read
The S&P 500 is America’s headline stock market index, home to the biggest 500 US companies and a global investment favourite.
But a handful of tech giants have grabbed the wheel, raising the question: are UK investors betting too heavily on just a few big names? And more importantly, is there anything you can do about it?
From what history tells us, to what today’s experts think, and the strategies you can use to spread your bets, here’s how to make sense of the risks hiding in plain sight.
Financial Interest provides guidance, not advice. If you’re unsure about anything, speak with a qualified adviser. When investing, your capital is always at risk. Past performance does not guarantee future results.
For years now, the five familiar giants - Apple, Microsoft, Amazon, Alphabet (Google), and Meta (Facebook) - have held outsized influence over the S&P 500.
Because the S&P 500 is weighted by market capitalisation (meaning bigger companies automatically have more influence), it naturally becomes tilted towards those that grow fastest. In other words, success breeds more weight.
This creates a feedback loop: popular companies attract more money, making them even more dominant.
And just to put into perspective how gargantuan some of these big names are, in 2020, the value of Apple alone surpassed that of the entire FTSE 100 - the 100 largest companies listed on the London Stock Exchange.
When just a small handful of firms grow enormous, the entire index becomes heavily dependent on them. If even one major player stumbles, the whole market can feel the tremor.
History has shown repeatedly that extreme market concentration rarely ends without drama.
For UK investors trusting the S&P 500 as a broadly diversified index, it might be a surprise to discover how many of their eggs sit in relatively few baskets.
History shows we've been here before
Looking back, it's clear big market shifts often follow periods dominated by a few superstar stocks.
Take the early 1970s, when investors adored the so-called "Nifty Fifty". Brands like Polaroid, Xerox, IBM, and Coca-Cola seemed untouchable...until suddenly they weren't.
Between 1973 and 1982, the S&P 500 went precisely nowhere (after inflation, it was even worse), and former favourites saw sharp drops in their valuations. During that same sluggish decade, more diversified portfolios holding smaller companies, emerging markets, and commodities did notably better.
Fast forward to the millennium: the dot-com crash in 2000 kicked off a similar story. Tech giants such as Cisco, Intel, and AOL saw their values plummet. None reclaimed their lofty peaks.
From oil giants to tech titans
Leadership of the S&P 500 has changed hands plenty of times over the decades, as seemingly unbeatable behemoths have faltered in the face of changing circumstances.
Back in the early '90s, tech stocks accounted for a mere 6% of the market. Instead, traditional sectors such as industrials and energy dominated the scene.
Compare that to today, with tech taking up close to a third, followed only by financials and consumer discretionary (non-essential, fun stuff).
Rewind back into the 80s, and the energy sector alone made up nearly 29% of the entire S&P 500. Oil giants dominated, buoyed by high prices driven by geopolitical tensions, supply shocks, and strong global demand.
The lesson? The sun eventually sets on even the mightiest sectors.
Comparing the S&P 500 to other global markets
If you're thinking concentration risk is just a US phenomenon, think again. Many global indexes have similar issues, including the UK's FTSE 100.
While the FTSE 100 features a hundred top UK companies, it often sees just a few names holding significant sway.
Large multinationals like Shell, AstraZeneca, and HSBC can individually take up a sizeable chunk of the index. Historically, the top ten companies alone have made up nearly half the FTSE 100's value.
Ironically, the FTSE avoided the dot-com crash because it had virtually no tech stocks, but the same lack of tech exposure meant it missed out on later gains as well.
Smaller European markets often face even greater concentration. Switzerland's index is heavily dominated by Nestlé, Roche, and Novartis, and France relies heavily on luxury giant LVMH. These indexes often have their top ten stocks make up more than half their total value, making the S&P 500's concentration issues look relatively modest.
But what about truly global indexes, like the MSCI World? While these cover multiple countries, they remain heavily dominated by US stocks. The largest US companies usually form the bulk of the MSCI World's top holdings, leaving global investors also highly exposed to American giants.
What the experts think
Wall Street's top analysts and professional investors have become increasingly wary about the dominance of a few enormous companies in the S&P 500.
Goldman Sachs has pointed out that market concentration is at levels not seen in decades, warning this could severely limit returns over the next decade.
Morgan Stanley echoed similar concerns, highlighting that when just a handful of companies lead the market, it effectively reduces diversification, making portfolios vulnerable if any of these giants stumble.
JPMorgan researchers noted that in past periods of extreme concentration, small and mid-sized stocks tend to outperform significantly once the market rebalances itself.
On the other hand, not all experts see today's concentration as a foreboding red flag. Analysts from asset management firm Alger argue that the biggest companies today - such as Apple, Microsoft, and Google - are fundamentally different from previous market leaders.
That's because these modern behemoths can back up their supremacy with stonking profits earned on a global scale, justifying their high valuations and market dominance.
These contrarian analysts draw comparisons to the Nifty Fifty era, suggesting that while those companies appeared overpriced at the time, many (like Coca-Cola, Eli Lilly, Johnson & Johnson, Pfizer, Walmart) ultimately delivered strong growth, proving sceptics wrong.
However, even believers in these large-cap stocks admit that concentration brings risks for index investors. BlackRock's research shows earnings news from a single big firm can now move the entire market in ways not previously seen with broadly diversified indexes.
This increases what they call "idiosyncratic risk" - that is, the possibility that bad news from a single company could topple the entire Jenga tower.
Ethical investing could increase concentration risks
If you're the kind of person who airlifts snails out of busy footpaths or feels personally responsible when Pudsey Bear rattles his bucket on Children in Need night, you might also be tempted to put your money into ethical investments.
ESG (environmental, social and governance) funds like the S&P 500 ESG Index or Vanguard's ESG Global Stock ETF screen out controversial sectors such as oil, tobacco, and weapons manufacturers. This feels great morally. But, there's a snag.
Especially in times when the S&P 500 is already heavily concentrated in a handful of giant firms, ethical investing can unintentionally magnify your exposure to these very companies.
With controversial sectors excluded, ethical indexes often fill the gap with even more of the big tech names, like Apple, Microsoft, and Alphabet.
It's a bit like giving up meat but accidentally living on a diet of Greggs' vegan sausage rolls. Not exactly balanced, even if tasty.
If you're investing in an ESG fund, it's a good idea to check the sector breakdown. As a quick rule of thumb, more than 25% is probably a little risky.
You can help balance things out by adding thematic ETFs (funds that concentrate on a particular industry, trend or theme) from other sectors to your ESG portfolio, such as the iShares Global Clean Energy ETF, L&G Clean Water ETF, or Impax Environmental Markets investment trust.
These funds target sustainable industries like renewable energy, water management, and environmental solutions. Bear in mind, however, that specialised ETFs typically carry higher ongoing charges than basic index trackers.
And if tech takes a dive while oil, mining, and weapon manufacturers soar, all that tinkering likely still won't be enough to make your ESG portfolio keep up with the average market performance. Unfortunately, having a clean conscience can come at a price in the investing world.
More of a visual learner? No problem. We've also tackled this topic over on our YouTube channel, with plenty more fun charts but just as many laboured metaphors:
Three ways to reduce concentration risk
If staking your financial future on the fortunes of Silicon Valley makes you feel uneasy, there are ways to make your portfolio less dependent on a handful of glitzy tech names.
Think of index investing like a karaoke night: you can let a couple of singers take over the whole night, allot everyone an equal amount of time, or find a halfway-house that's fair while also recognising that not everyone is Celine Dion.
1. Equal-weight indexes
With an equal weight index, every company gets the same slice of the pie, whether it's Apple or a firm you've never heard of. It's karaoke democracy.
This reduces reliance on the biggest names and gives smaller companies a chance to shine. Over the very long term, equal-weight indexes have even outperformed their market-weight counterparts.
But there's a downside: when Elvis Presley reincarnated shows up at the karaoke night, he still gets cut off after two songs so tone-deaf Bill from accounting can belt out Sweet Caroline. In investing terms, that means truly exceptional, high-growth companies are given the same weighting as plodding firms like Spades & Trowels Inc.
Equal-weight indexes also typically have higher costs because they require regular reshuffling to maintain balance.
On InvestEngine, we found three equal-weight versions of the S&P 500 index: Xtrackers S&P 500 Equal Weight Scored & Screened, Invesco S&P 500 Equal Weight, and iShares S&P 500 Equal Weight.
Before buying, check the total expense ratio (TER) and decide which version of the index you want: Income (which pays out dividends) or Accumulating (which reinvests them automatically). Not sure on the difference? We've got you.
2. Fundamentally weighted indexes (Smart Beta)
These indexes don't hand out mic time based on popularity (market value) or fairness (equal weight). Instead, they launch an X Factor-style hunt for hidden talent. That means choosing companies based on real-world fundamentals like revenues, earnings, dividends, or assets.
It's an approach that prioritises substance over style. By focusing on economic strength, these strategies avoid overhyped stocks with no earnings and lots of promise.
Historically, they've tilted towards undervalued companies (so-called "value stocks"), which can help reduce the risk of getting caught in market bubbles.
The trade-off? If the flashy growth stocks do end up delivering on their promises, this strategy might miss out. And like equal weighting, it sometimes means paying higher fees.
These types of indexes will often include the word 'value' in the fund name. Here's an example of four funds, available across many popular platforms including Trading 212, along with their respective OCFs (the ongoing charge from the fund provider):
| Fund | Summary | OCF |
|---|---|---|
| UBS MSCI USA Value | Provides investors with exposure to ‘undervalued’ large-cap US equities. | 0.20% |
| iShares MSCI USA Value Factor | Similar to UBS, but includes mid-cap stocks too. | 0.15% |
| SPDR MSCI World Value | Tracks the performance of global developed large-cap market equities, with a higher weighting given to equities with ‘low valuation’ characteristics. | 0.25% |
| iShares Edge MSCI World Value Factor | Made up of a subset of MSCI World stocks, again intended to capture undervalued stocks across developed countries. | 0.25% |
These are examples, not investment recommendations. Capital is always at risk when using investment products.
3. Set limits with sector or stock caps
Capped indexes let the big names take the mic, and just not for the entire night. There's a limit on how much influence any one stock or sector can have. If one act starts to dominate, it gets trimmed back at the next rebalance.
This isn't about picking stocks based on hidden talent like Smart Beta, or giving everyone the same time like equal weighting. It's about keeping the party from being completely taken over, while still giving the most popular voices longer on stage than the unknowns.
That means you can still tap into the success of market leaders, while avoiding overreliance on just a few names.
Like the other two strategies, these funds tend to come with higher fees – and if today's top performer continues to soar, you might miss out on some gains, though typically less than with a purely equal-weighted approach.
While there isn't a capped S&P 500 ETF on Trading 212 or InvestEngine, you can create a similar effect by combining an equal-weight S&P 500 ETF (like iShares S&P 500 Equal Weight) with one that focuses on the largest 20 companies in the index (e.g. iShares S&P 500 Top 20).
This lets you customise your exposure, giving more weight to the index's leaders than an equal-weight fund would, but without the overconcentration risk of a traditional market-cap-weighted approach.
Bottom line
The S&P 500 is a global favourite for good reason, but right now it's unusually dominated by a small number of tech giants.
That's not necessarily bad. These companies have genuinely earned their spot. But, it does mean extra risk for UK investors relying solely on this index for diversification.
Balancing out with equal-weight indexes, smart-beta strategies, or capped funds could help spread the risk.
Financial Interest provides guidance, not advice. If you’re unsure about anything, speak with a qualified adviser. When investing, your capital is always at risk. Past performance does not guarantee future results.
