The FTSE, DAX and CAC are more concentrated than the S&P 500

Equity indices are often seen as a good way to achieve a broad spread of exposures to companies operating in different industries and thereby reduce stock risk, but it is important to be aware of concentration risk.

While much has been written recently about how the S&P 500 is dominated by its largest constituents, it is probably less well appreciated that the UK’s popular FTSE 100 index and other leading indices are equally, if not more concentrated.

As the table shows, HSBC in the UK and French luxury brand LVMH have higher weightings than Nvidia in the US, with German powerhouse Siemens not far behind, representing around 7% of the DAX index.

Part of the reason is that the German Dax and French CAC are comprised of just 40 companies compared with the 500 in the S&P. Even taking this into account, the indices are far more ‘top heavy’ than a simple equal weighted index where each company would represent 2.5% of the total.

Looking farther afield the MSCI Emerging Markets index is dominated by Taiwan Semiconductor Company with its 14.2% weighting and Samsung Electronics which has a 6% weight. The top 10 have a combined weight of 35%.

A more diverse index covering the UK and Europe is the Stoxx 600 index, where the top 10 companies only comprise 15% of the total.

Why is concentration undesirable?

One of the main attractions of owning an ETF which tracks an index is that it is comprised of lots of companies operating across different parts of the economy.

This means you don’t have to worry so much about company specific risks.

If one company in the S&P 500 has a bad product launch or is caught up in a scandal, the other 499 stocks act like a cushion for performance. At the other end of the spectrum, you get automatic exposure to positive surprises too, which helps performance.

For example, the invention of weight loss drugs transformed Eli Lilly from a mid-sized healthcare company into the first trillion-dollar healthcare company.

The weighting in the index of the most successful companies goes up while the less successful ones become a smaller part of the index, and less influential on its performance.

The higher concentration of the S&P 500 means that If Apple or Nvidia were to miss earnings expectations, they can more easily drag the entire S&P 500 into the red, even if the other 498 companies are doing fine.

High concentration is the equivalent to putting more eggs into fewer baskets which increases stock specific risk and makes the index more volatile and less representative of the broader economy.

How concentrated is the S&P 500 index?

The S&P 500 has become increasingly concentrated in recent years with mega-cap stocks driving a growing share of market returns.

For example, BlackRock estimates the top 20 companies by market value contributed 64% to the index’s five-year return using data to the end of 2025.

Today the top 10 companies represent almost 40% of the value of the index according to LSEG data with AI chip designer Nvidia the largest weighting at 8%.

How does the current concentration compare historically?

The table shows the current level of concentration has surpassed the dotcom era and even the early 1900s when the market was dominated by a few large railroad companies.

Are equal weighted indices the solution to concentration?

An equal-weighted S&P 500 index is less vulnerable to performance distortion by a few big companies, but it also introduces other risks. Giving a relatively small company the same weight as a Microsoft increases the portfolio’s exposure to smaller, more volatile companies.

Consequently, equal-weighted indices can experience deeper selloffs during periods of market weakness and panics.

Equal-weighted indices involve making unintentional bets on certain sectors relative to their importance in the economy.

Lastly, while equal-weighted indices have been performing well recently as the market advance broadens out to a wider set of companies, they are effectively anti-momentum strategies which cut the flowers and water the weeds.

This is because equal weighting forces the provider to sell the winners every time they rebalance.