2024-07-03 23:45:00 ET
Summary
- ClearBridge is a leading global asset manager committed to active management. Research-based stock selection guides our investment approach, with our strategies reflecting the highest-conviction ideas of our portfolio managers.
- Extreme market concentration, at both the sector and individual stock level, has significant implications for portfolio construction, particularly for broadly diversified, core portfolios.
- While the market has become more concentrated and less diversified over time, ClearBridge Dividend Strategy has not. Diversification by sector and name has always been a hallmark of our process and that remains doubly true today.
- As valuation multiples have increased, we have continuously sharpened our pencils on valuation, winnowing our most at-risk expensive stocks and redeploying those proceeds into solid investments with less demanding valuations which should be more resilient whenever turbulence returns.
By John Baldi, Michael Clarfeld, CFA & Peter Vanderlee, CFA
Market Concentration Tests Rule of Prudence
Market Overview
The S&P 500 Index ( SP500, SPX ) rose 4.3% in the second quarter, putting it up 15.3% for the half year. Almost all of the quarter's performance came from the information technology ('IT') sector. Within IT, just three stocks - Apple ( AAPL ), Microsoft ( MSFT ) and Nvidia ( NVDA ) - provided over 85% of all gains. Such market concentration is highly unusual and has significant implications for portfolio construction, particularly for broadly diversified, core portfolios.
From mainframes to tape storage, copy machines to fax machines, PCs to the internet and now smartphones to AI, phenomenal advances in technology have radically changed society and business. But one need not look back to the 1960s to see how the growth in technology has changed the game for equity investors. Just 10 years ago, the IT sector, as it was then constituted, made up 18% of the S&P 500. Today, those same companies represent over 40% of the S&P 500 (Exhibit 1). 1 Going back to 1990, no other sector has ever represented more than 32% of the S&P 500, including IT at the peak of the dot-com bubble in 2000. One year later, after the bubble had burst, IT had shrunk to 18% of the S&P 500....
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For further details see:
ClearBridge Dividend Strategy Q2 2024 Commentary