Concentration is up; diversification isn't gone

Key arguments

• Top-10 S&P 500 weight near 40% is the highest since the mid-1990s, but the index still retains broad diversification benefits.
• Effective holdings fell from about 120 pre-pandemic to roughly 50, yet this remains far above concentrated-portfolio thresholds.
• Academic work finds 25-30 stock portfolios remove most company-specific risk, with roughly 30 names cutting diversifiable risk by up to 86%.
• Correlations among top-10 holdings have trended lower with narrower dispersion, as mega-caps span diverse business lines and geographies.

Corresponding source evidence

1. More recent academic research indicates that while the the diversification benefits may be somewhat lower than earlier studies suggested, they remain significant, with portfolios of roughly 30 stocks reducing diversifiable risk by as much as 86% (Surz & Price, 2000)2. · 2000
2. This is particularly relevant today, as much of the concentration in the S&P 500 is driven by large technology-oriented companies that may share common earnings drivers, economic sensitivities, and market narratives.
3. For investors with a constructive view on technology, artificial intelligence, and the broader innovation economy, the S&P 500 remains a compelling core allocation and an efficient way to participate in long-term US economic growth and innovation trends. · long-term