Atlantic Edge Insights
September 2025
Market Insight: Concentration Risk
Stock market performance has been driven by a small group of large companies, pushing market concentration to record highs. While the S&P 500 has risen with this increased concentration, it also carries risks: when market leadership is narrowly focused, portfolios become more vulnerable to setbacks in just a few stocks. To mitigate this risk, we have constructed portfolios that weigh the largest stocks below their weight in the broader market. Recent data suggest that this concentration may be starting to ease. Though it is far too early to determine if this is the start of a longer trend, we nonetheless expect market concentration to recede in the future.
The chart below illustrates the 10 largest companies in the S&P 500
as a percentage of the entire S&P 500 (by market weight)
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Market concentration reached a record high at the end of July before easing slightly in August as two previously lagging sectors, Health Care and Materials, led the market, while Technology, the most heavily weighted sector, trailed.
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Historically, markets tend to increase concentration quickly over relatively short periods before receding slowly over longer periods. When concentration rises, market-cap weighted portfolios usually outperform. When it falls, equal-weighted portfolios often do better.
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While it’s too early to call this the first step in a more lasting rotation, we expect concentration to ease over longer periods. With this in mind, we have constructed portfolios that are less concentrated than the overall market. By doing so we not only protect portfolios from steep declines due to the collapse in price of just a few stocks, but also position portfolios to outperform the broader market as concentration recedes.
Atlantic Edge Insights
Matthew Cochran, CFA
Robert Filosa, CFA
Ethan Caldarelli, CFA
Opinions expressed in this commentary may change as conditions warrant and are for informational purposes only. Information contained herein is not intended to be personal investment advice for any specific person for any particular purpose. We utilize information sources that we believe to be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee of future performance; investing involves risk and may result in loss of capital. No graph, chart, formula or other device can, in and of itself, be used to determine which securities to buy or sell, or when to buy or sell such securities, or can assist persons in making those decisions. Consider seeking advice from a professional before implementing any investing strategy.
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