Equity Is your core US equity allocation ready for what's next?

US equities often sit at the heart of most investment portfolios, but the US market today looks very different from the one that rewarded passive investors for much of the past decade. Concentration has reached historic levels, and early signs suggest leadership is beginning to broaden. That shift could have real consequences for how investors implement their core US equity exposure.
 

Today's starting point: a highly concentrated market
 

The US market's concentration has become a defining characteristic of today's investment landscape. Years of inflows into market-cap-weighted index strategies have pushed more capital towards a select group of companies. These flows take no account of valuation, business quality or economic exposure.
 

At the end of July 2026, the ten largest constituents of the S&P 500 accounted for over 39% of the index's total market capitalisation, surpassing even the extremes of the dot-com era in March 2000.
 

Concentration can manifest across companies, sectors and industries. Layers of concentration may leave investors more exposed to a narrow set of return drivers than they realise. It can also make portfolios more vulnerable when market leadership changes or periods of volatility emerge.

As at 31 July 2026. Based on constituents of S&P 500 Index. Sources: Capital Group, FactSet.


What concentration means when leadership shifts
 

In highly concentrated markets, a small group of stocks can account for an outsized share of gains. However, when leadership begins to broaden or volatility rises, that same concentration can become a source of risk. Passive strategies that track the index leave investors fully exposed to the market's largest constituents at a time when leadership may be shifting.
 

This has already played out twice, during the 2022 downturn and again following Liberation Day in 2025. On both occasions, just seven stocks, the Magnificent Seven, accounted for more than 50% of the S&P 500's decline. 

Leadership narrowing around a compelling story is a recurring feature of markets, and one that has never persisted indefinitely. In 1980, fossil fuel companies made up 29% of the S&P 500; today, under 3%. Japanese equities reached 44% of the MSCI World at their peak in 1989–1990; today, around 5%.
 

Signs that US market leadership is already broadening
 

Recently, much of the earnings growth in US equities has been concentrated in technology stocks. Today, however, other sectors are increasingly contributing, with areas such as energy and materials delivering strong earnings growth while profit margins have reached record highs.
 

In the second quarter of 2026, S&P 500 earnings grew by 52%, with eight of the index’s 11 sectors posting double-digit earnings growth.¹
 

Positioning a core US equity portfolio for the next phase of market leadership
 

Markets evolve, and so do the drivers of returns. As market leadership broadens and earnings growth becomes more diverse, investors may wish to consider whether their portfolios are positioned for the next phase of the cycle, not simply the last one.
 

A core active US equity portfolio grounded in deep fundamental research may be well positioned to identify emerging leaders, manage concentration risk and capture opportunities that may be overlooked in an index increasingly shaped by yesterday's winners.