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Welcome. This website is intended solely for the use of institutional investors, consultants and other professionally recognized financial intermediaries in specific countries. Intech Investment Management LLC (“Intech”), is an investment adviser registered with the United States Securities & Exchange Commission. Intech is not permitted to offer products and services in all countries. It is the responsibility of prospective investors to inform themselves of and to observe all applicable laws and regulations of any relevant jurisdictions, including the legal requirements and tax consequences within the countries of their citizenship, residence, domicile and place of business with respect to the acquisition, holding or disposal of shares or securities, and any foreign exchange restrictions that may be relevant thereto. The products and services referred to in this website are not offered to any person or entity in any jurisdiction where the advertisement, offer or sale of such products and services is restricted or prohibited by law or regulation or where we would be subject to any registration or licensing requirement not currently held by Intech or our affiliates. If Intech does not offer a website for your country, please visit www.janushenderson.com.

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Let this one sink in:

The five largest stocks in the S&P 500 Index currently have a market capitalization equivalent to the smallest 270 stocks in the index.

While this level of concentration in larger-cap stocks is not unprecedented, the Intech Equity Market Stress Monitor™ has shown a steady increase in the capital concentration metric in U.S. markets over the last three years with no signs of slowing down.

The source of this concentration has largely been driven by investor’s appetite for growth stocks, in particular some large-cap tech stocks, which have been all the rage for a while now. As a result, the FAANGs: Facebook, Apple, Amazon, Netflix (sometimes interchangeable with Microsoft) and Alphabet, parent company of Google, have represented a significant portion of the gains made by equity indexes over the past few years.

Market Stress and Volatility Side Bar

Even in an environment of rising U.S. interest rates - where the cost of doing business becomes more expensive - investors continue to favor growth stocks despite global trade tensions and the potential for more regulations looming over giant technology companies.

Today’s capital concentration in U.S. markets, however, is not unique and by no means has reached a new record. During the height of the dot-com bubble, the top five market cap stocks in the S&P 500 Index had a weight that was almost twice that of the bottom 270 stocks.

In 1999, the combined weight of the top five stocks in the S&P 500 Index was 17% compare to 14% today. The sector composition however, was more diverse, led by energy giant ExxonMobil, General Electric, Walmart, and Cisco Systems. Microsoft was the only technology stock to make it in the top five then and now.

Ten years ago, the top five stocks in the S&P 500 Index -- ExxonMobil, General Electric, Procter & Gamble (consumer staples), Johnson & Johnson (health care) and Microsoft – were large well-established stocks from various sectors representing 12% of the aggregate weight of the index.

What has changed? The leaders seem to be concentrated in one sector: technology, and in one style: growth.

Market_Cap_427

IS THIS JUST A U.S.-SPECIFIC PHENOMENON?

Non-U.S. stock indexes such as the MSCI EAFE Index on the other hand, are experiencing a decrease in capital concentration today, reflecting investors’ preference for smaller-cap stocks in this segment, which provides a tailwind for their performance relative to larger-cap stocks.

Capital concentration in smaller-cap stocks within the MSCI EAFE Index has not been this low since 1996, as seen in the Intech Equity Market Stress MonitorTM, an expression of extreme risk appetite.

While trending in opposite directions, the capital concentration in U.S. and non-U.S. markets are getting closer to extreme levels.

09-30-2018 Capital Concentration_SP500andEAFE

Whenever concentrations are extreme – not only high, but also low – that’s when signs of stress in the market are palpable. The Intech Equity Market Stress MonitorTM measures the deviation from normal levels of key risk metrics, and any extreme should be taken as a sign and warning that a return to the norm may shock the market and be a source of volatility. 

The Intech Equity Market Stress MonitorTM helps highlight an increased likelihood of tail-risk events, which ultimately allows investors and plan sponsors to make more informed asset allocation decisions to protect their portfolios.

The Intech Equity Market Stress MonitorTM is a collection of five metrics: Capital Concentration, Correlation of Returns, Dispersion of Returns, Index Efficiency, and Skewness of Returns. 

These are reliable indicators of equity market stress based on our 30-year history of studying volatility. You can use the monitor to gain insight to market risk regimes, contextualize beta risk management and complement your conventional risk metrics.

Intech Equity Market Stress MonitorTM Download the eBook that serves as a guide to our monitor. Download Now

 

The information expressed herein is subject to change based on market and other conditions. The views presented are for general informational purposes only and are not intended as investment advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation, or sponsorship of any company, security, advisory service, or fund nor do they purport to address the financial objectives or specific investment needs of any individual reader, investor, or organization. This information should not be used as the sole basis for investment decisions. All content is presented by the date(s) published or indicated only, and may be superseded by subsequent market events or other reasons. Although the information contained herein has been obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. Past performance is no guarantee of future results. Investing involves risk, including possible loss of principal and fluctuation of value.

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