If you are an index-fund investor, you’re probably feeling pretty good right now — the S&P 500 has returned 12.1% so far this year, with dividends reinvested, following its 18% decline in 2022.
But this is a tech-led rally reversing last year’s pain. The S&P 500 SPX is heavily concentrated, which is wonderful for index-fund investors when the biggest names rally, just as it was brutal when the group tumbled last year. Heavyweights If we look at the $405 billion SPFR S&P 500 ETF Trust SPY , which tracks the benchmark index, the weighting by market capitalization is so concentrated that five companies make up more than 24% of the portfolio.In a May 31 note to clients, Ed Clissold and Thanh Nguyen of Ned Davis Research wrote that the “overarching theme for the stock market in 2023 is the mean reversion in mega-cap stocks that underperformed in 2022.
And this underscores how exposure to stocks with high dividend yields that appear to be well supported by cash flow might make it easier for investors to ride out the type of market gyration we experienced last year — while being paid to wait. “We are also seeing encouraging stickiness when it comes to pricing,” he said. “Some competitors have had to cut prices to maintain share, but they have been able to increase some prices.”
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