Some of the biggest US companies have had a great run over the last decade. The performance has been so good that some of the biggest companies outperformed the S&P 500 and rekindled concerns around market concentration. Is this recent occurrence unique to today or backed by history?
Henrik Bessembinder answered that questions with his latest research into “do nothing” portfolios. One of the things he looked at was the performance of concentrated portfolios in the largest S&P 500 stocks compared to the overall index.
Bessembinder broke down the largest stocks into four market cap-weighted portfolio buckets: the single largest stock, 10 largest stocks, 50 largest, and 100 largest. Each portfolio was rebalanced each year into its corresponding number of largest stocks starting in 1971. Returns where then calculated through 2025 and compared to a portfolio of all S&P 500 stocks.
The results are below.
Owning the largest stocks, across all concentrated buckets, has been a net negative relative to the S&P 500 over the last 55 years.
The compound returns for each bucket is equally striking. Rebalancing into the single largest stock each year produced a 7.71% annual return over the 55-year period. The 10, 50, and 100 largest portfolios returned 10.72%, 10.92%, and 11.01% respectively compared to 11.30% for all stocks in the S&P 500.
A few observations can be made from the data:
- Concentration Drag — Owning a handful of the biggest stocks introduces the possibility of underperforming a more diverse portfolio, in this case the S&P 500. Sometimes over the very long run. Diversification improved results.
- Higher Drawdown Risk — Higher volatility is a tradeoff with more concentrated portfolios. With that brings the chance of worse drawdowns than you would get with a more diversified stock portfolio. The drawdowns during the 1973-74 crash, the Dotcom Bust (2000-2002), and 2022 market correction are examples of this risk playing out relative to the broader index.
- Inconsistent Underperformance – Underperformance in the biggest stocks is not absolute. In fact, owning the biggest stocks underperformed from 1973 to 2013 but outperformed from 2014 to 2025. While the argument may be made that “this time is different” and concentrating now works, history shows that the recent outperformance appears to be the exception. Besides, a more diversified portfolio still benefitted from the biggest stocks getting bigger and maintained its lead because of it.
- Growth Opportunities Everywhere Else – The data suggests that the best growth opportunities may not be in the biggest, but in everything else. The best returns lie in the small companies that grow into the biggest companies of the future. Diversification increases the chance of finding those companies.
Bigger is not always better. Size alone is not enough to concentrate into the largest stocks. Fundamentals still matter. The biggest stocks could be the biggest because they’re overpriced, reached peak market share, or both.
Size says more about how much a company has grown, not how much it will grow in the future. The data backs that up. Concentrating in the biggest stocks can be a drag on long run performance.
Source:
- Returns to “Do-Nothing” Portfolios
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