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The Silent Asset Allocation Problem
With the rapid appreciation of the largest stocks , the asset-class goalposts have moved . By Steven Ellis
THE RAPID APPRECIATION OF THE LARGEST U . S . stocks has shifted the asset allocation playing field in ways that aren ’ t widely recognized . Many fewer companies now meet the conventional definition ( used by organizations such as Morningstar ) of being large .
As a result , most fund investors likely have far less in largecapitalization stocks than they have targeted and far more in smaller or mid-sized companies . Morningstar ’ s fund categorization labels can also be quite misleading . This can lead to significant costs in terms of investment underperformance and potential fiduciary liability .
How We Got Here
The 10 largest stocks in the S & P 500 have appreciated very rapidly in recent years , and at the end of 2024 represented a much higher share of the overall index ( 39 %) than we have seen for decades .
This remarkable concentration of value has had an unrecognized impact on the asset allocation models widely embraced by investors ( both individuals and institutions ), specifically on
Weight Of The Top 10 Stocks In The S & P 500
Percentage of market capitalization of the S & P 500 .
40 % 36 % 32 % 28 % 24 % 20 %
Source : J . P . Morgan Asset Management Guide to Markets .
Dec . 31 , 2024 : 38.7 %
16 % ‘ 96 ‘ 98 ‘ 00 ‘ 02 ‘ 04 ‘ 06 ‘ 08 ‘ 10 ‘ 12 ‘ 14 ‘ 16 ‘ 18 ‘ 20 ‘ 22 ‘ 24
those who use mutual funds and exchange-traded funds as their primary vehicles .
Asset Class Definitions
Morningstar is likely the most widely used source of mutual fund and ETF analytics in the U . S . Its competitors — Bloomberg , FactSet , Interactive Data , Standard & Poor ’ s and Thomson Re-
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