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3 Highly Rated Large-Growth Managers Who Are Wary About the Big 5

History casts doubts on the reign of the five biggest companies.

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Concentration is at a high point for U.S. equity benchmarks. At the end of August, the Russell 1000 Growth Index’s weighting in its five biggest holdings--Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Facebook (FB), and Alphabet (GOOGL)--stood at 38.75%. Core indexes aren’t immune, either. Those same five stocks accounted for nearly 24% of the S&P 500, 5.8 percentage points more than what its top five positions totaled in March 2000, around the time the dot-com market bubble burst.

It isn’t clear we’re in another bubble. Unlike many of the highfliers of the dot-com era, the “Big Five” companies all generate lots of cash and two of them pay dividends. The stocks could still do well, as Microsoft did. It was a top holding in March 2000, as in August 2020. Although it swooned and then languished for many years, between those two dates Microsoft returned 9.7% annually, 3.6 and 3.4 percentage points more than the Russell 1000 Growth Index and S&P 500, respectively.

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Alec Lucas has a position in the following securities mentioned above: POGRX. Find out about Morningstar’s editorial policies.