The writer is a former global head of asset allocation at a fund managerThis year has been marked by strong equity markets, and what looks to be an astonishingly narrow rally. Of the 16.9 per cent returned by the S&P 500 index in the first half of this year, 12.9 per cent derived from the performance of only 10 companies.
With such a high proportion of a market’s value created by so few groups, it feels fair to question the tool kits of asset allocators and, more broadly, the product line-up of fund management firms.
Narrow stock market returns are, after all, the norm. Research by Arizona State University professor Hendrik Bessembinder shows that more than half of the $55.1tn in net wealth generated by the US equity market between 1926 and 2022 came from the performance of fewer than 0.3 per cent of the market’s stocks, with the other half of this net wealth coming from the next best 3.1 per cent of stocks.