Index concentration risk: why a few stocks count for a lot

An index with hundreds of stocks can depend on a few large companies. This concentration risk, also known as cluster risk, affects many indices. The table below shows how differently the major indices performed in the trading week to 16 October 2026. Why they did so cannot be derived from it. The Nasdaq Composite lost 4.48%, the S&P 500 1.95%, and the Dow Jones gained 0.67% (own calculation from closing prices, as of 16 October 2026). Past performance is not a reliable indicator of future results.

The trading week to 16 October 2026

Closing prices, change based on own calculation.

On 16 October 2026, all but 7 of the 75 technology stocks in the S&P 500 closed lower. The news agency Associated Press (AP) cited concerns about how long the boom in investment in artificial intelligence (AI) would last. That is the explanation given in the agency report, not an established cause.

Why do a few stocks move an entire index?

What matters is the weight, not the number of stocks. The S&P 500 has 503 stocks and is weighted by free-float market capitalisation (as of 22 October 2026). Large companies therefore count for more than small ones. The MSCI World, with 1,249 stocks, is weighted in the same way (as of 30 September 2026). The Dow Jones takes a different approach.

Price-weighted or market-cap-weighted: what is the difference?

Both methods answer the same question in different ways: how much does a stock count in the index?

• Price-weighted index: Only the share price matters. The Dow Jones is the sum of the prices of all 30 stocks, divided by a divisor. The more expensive a single share, the more it counts. The size of the company plays no role. The divisor is a calculation factor. It is adjusted, for example, after stock splits (one share is divided into several), so that the index does not jump merely because of such changes.
• Market-cap-weighted index (weighted by market capitalisation): What matters is market capitalisation, i.e. price times number of shares. The S&P 500 counts only the freely tradable shares for this. A large company counts for more, even if its individual share is cheap.

The difference becomes clear when an expensive share belongs to a small company. In the calculator below, stock A's share costs 300, but the company is small. In the price-weighted index, A has a weight of 60%; in the market-cap-weighted index, only 10%. Stock B is the reverse: its share costs 40, and the company is the largest. Price-weighted, B has a weight of 8%; market-cap-weighted, around 67%.

The different weighting is one possible explanation for why the Dow Jones performed differently in that trading week. It is not proof of the cause.

Concentration in the S&P 500 and MSCI World

For the S&P 500, the figure is our own sum of the ten individual weights in the holdings of a fund that tracks the index. The fund's holdings are the shares the fund actually holds. Deviations from the index are possible. The information technology sector accounts for 37.57% of the fund's holdings, and the technology sector for 31.78% of the MSCI World (30 September 2026). Concentration works in both directions: the weight amplifies falls in the large stocks just as it amplifies rises.

Assessments by central banks and the IMF

On 7 July 2026, the Bank of England pointed to a narrow group of AI-related companies that it said was increasing market concentration in some global indices. In May 2026, the European Central Bank (ECB) noted that asset valuations were particularly high in the technology and AI sector. In October 2026, the International Monetary Fund (IMF) named a correction in AI-related assets as a risk. Leverage and concentrated investor positions could amplify it. Leverage means borrowing used to enlarge positions. These are assessments, not forecasts.

Does this also apply to Switzerland?

Yes. On 2 April 2026, Nestlé, Novartis and Roche together made up around half of the SMI (Swiss Market Index). According to an analysis by UBS (as of 31 October 2025), the five largest stocks accounted for around 47% of the SPI (Swiss Performance Index), just under 30% in the US and around 8% in the world excluding the US. Concentration is therefore not only a US issue.

Spreading risk

Diversification means spreading money across different investments, regions and sectors. How this spreads risk is explained in the article on diversification. Many stocks do not automatically mean a broad spread of weights, because the share of the largest stocks is what counts.

Equal weighting spreads risk differently. To achieve it, the weights have to be reset regularly, which means buying and selling stocks. Compared with a market-cap-weighted index, smaller stocks receive more weight.

Risks and limitations

• Losses: Indices can fall. Concentration amplifies the decline of the large stocks, and the gain when they rise.
• Equal weighting: It does not protect against losses and is not automatically better. It only changes which stocks shape the index.
• Snapshot: Weights change constantly. The reference dates differ (16 October, 22 October, 30 September 2026).
• Currency: The MSCI World is calculated in US dollars. Anyone calculating in Swiss francs bears exchange rate risk: the dollar can lose value against the franc. This applies unless a product is currency-hedged.
• Interpretation: Concentration is not proof of overvaluation. Simultaneous movements do not prove a cause.

Keeping an eye on weights

Index providers publish the weights of the largest stocks, for example MSCI in its factsheet (data sheet) as of 30 September 2026. Weights change constantly, so every figure needs its reference date. How such a data sheet is structured is shown in the article How to read a factsheet: items, identifiers and charts explained.

Conclusion

A few large stocks can shape an index, because weight counts, not the number of stocks. In the S&P 500, the ten largest positions account for 37.93% (22 October 2026); in the MSCI World, 27.85% (30 September 2026). Equal weighting spreads risk differently but does not rule out losses. The SMI is concentrated too.