Concentration Navigation

Matthew Allgood |






Analyzing the key force steering the current market environment reveals an intriguing pattern. When we look at one of the most widely followed U.S. equity benchmarks, the S&P 500, a notable observation arises: the collective weight of the top 5 companies in the index exceeds 25%, reaching an unprecedented high. This surpasses even the tech-driven boom of 2020 and the dot-com bubble of 2000.


The implications of such concentration from a risk perspective are significant. Such top-heavy dominance exposes the index to heightened vulnerability, especially considering the characteristic sizable downturns these mega-cap tech stocks can experience. Historical patterns suggest that periods of extreme concentration are often followed by a reversion to more standard levels. This could manifest as the remaining index components catching up or a retreat by the top stocks.


However, forecasting market dynamics remains unpredictable. We rely on our quantitative approach. Through dynamic strategies, our goal is to navigate various market conditions while prioritizing the mitigation of downside risks.



Concentration Navigation


A graph showing the growth of stocks

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Source: Bloomberg, Redwood. Data as of 11/24/2023. Date Range from 1/1/1990 - 11/24/2023. For illustration purposes only.



  • We believe capital preservation is key to consistent, long-term investment success.
  • Our investment approach is grounded in economic theory and backed by quantitative analysis.
  • Managing drawdown risk is a pillar from which we build our portfolios.



Allgood Financial

Disclosure: This piece is for informational purposes only and contains opinions that should not be construed as facts. Information provided herein from third parties is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Charts and graphs are for illustrative purposes only. Discussion of any specific strategy is not intended as a guarantee of profit or loss.  Past performance is not a guarantee of future results. The objectives mentioned are not guaranteed to be achieved. Investors cannot invest directly in any of the indices mentioned above.


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