Stock Market Concentration: How Much Is Too Much?

giugno 04, 2024

Stock Market Concentration: How Much Is Too Much?

Consilient Observer

Stock Market Concentration: How Much Is Too Much?

giugno 04, 2024

Stock market concentration has increased sharply over the past decade, creating a challenging environment for active managers and also raising unease about the loss of diversification, the valuations of the largest stocks, and the effect of flows into index funds.
In this report, we look at concentration over the past 75 years to see where we stand today and to reflect on what it means for active equity managers.
We examine which companies have had the largest stock market capitalizations and how that population has changed.
We ask whether there is a correct level of concentration, both by comparing the U.S. to other global markets and by presenting the possibility that concentration was too low in the past.
We then seek to determine whether fundamental corporate performance supports the current increase in concentration.

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DEFINITIONS
Market Capitalization is the total dollar market value of all of a company's outstanding shares.

IMPORTANT INFORMATION
The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) and its subsidiaries and affiliates (collectively the Firm”), and may not be reflected in all the strategies and products that the Firm offers.

This material is for the benefit of persons whom the Firm reasonably believes it is permitted to communicate to and should not be forwarded to any other person without the consent of the Firm. It is not addressed to any other person and may not be used by them for any purpose whatsoever. It is the responsibility of every person reading this material to fully observe the laws of any relevant country, including obtaining any governmental or other consent which may be required or observing any other formality which needs to be observed in that country.

This material is a general communication, which is not impartial, is for informational and educational purposes only, not a recommendation to purchase or sell specific securities, or to adopt any particular investment strategy. Information does not address financial objectives, situation or specific needs of individual investors.

Any charts and graphs provided are for illustrative purposes only. Any performance quoted represents past performance. Past performance does not guarantee future results. All investments involve risks, including the possible loss of principal.

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Stock Market Concentration: How Much Is Too Much?