The World In A Week – Concentrate on the Concentration

Written by Millan Chauhan.

Over the last week, Apple’s market cap has exceeded $3 trillion, the first company to do so in history.  In October 2021, Microsoft overtook Apple as the world’s most valuable company before Apple retook the crown following a sharp rally in November 2021.  Apple kicked off the first trading day of 2022 with a strong start and briefly eclipsed the elusive $3 trillion market cap threshold.  Over the last five years, we have seen the technology manufacturer majorly diversify their product line from the initial personal home computer to the iPod, iPad and iPhone and now, most recently, to the AirPods.  Apple’s track record of developing cutting-edge innovative products has underpinned the growth of the Company and they continue to diversify their  product range with potential launches of virtual reality devices and an electric car.

However, as such big technology names have grown so rapidly so has their weighting at a benchmark level with Apple being the top weight in the S&P 500 at 6.9% and 11.6% in the technology-heavy NASDAQ.  The concentration of the top weights has narrowed tremendously as the mega-cap technology names including Amazon, Alphabet, Microsoft, Meta Platforms, and Apple have outpaced a large proportion of the remaining index and now constitute roughly 22% of the S&P 500 Index.  This has become a difficult risk to navigate for active US Growth fund managers as they are almost forced into holding these mega-cap technology stocks since they constitute such a large proportion of their index and not holding the stocks could impact their relative performance.

Elsewhere, cases of the latest strain of the virus Omicron continue to rise with 1.2 million people in the UK testing positive in the last seven days.  The number of days needed to isolate was reduced from ten to seven, and now UK businesses have encouraged this to be reduced further as symptoms of the new strain are deemed less severe and would help support the labour shortages the country is facing.  The current US health advice is to self-isolate for five days after receiving a positive test which may be several days after the first symptoms.

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