Over the past 12 to 18months, the stock market has become unusually narrow. A relatively small group of mega-cap growth companies — primarily technology and AI-related businesses —has driven a disproportionate share of the S&P 500’s overall return.
We reported early this year that nearly 40% of the total return for the S&P 500 was produced by only 10 companies.
https://www.curranllc.com/curran-views/why-we-are-underperforming-in-core-growth
As a result, many high-quality investment strategies have lagged the broader market index despite maintaining strong underlying fundamentals. Core Growth Equity is suffering and struggling to keep up with the S&P 500.
This divergence is largely structural.
High-quality portfolios typically:
• avoid excessive concentration in a handful of stocks,
• rebalance away from overextended positions,
• emphasize valuation discipline,
• focus on durable earnings and strong balance sheets, and
• maintain broader diversification across sectors and companies.
In the current environment, those characteristics have temporarily acted as a headwind rather than an advantage.
Several important forces are contributing to this phenomenon:
1. Capitalization-weighted indexes magnify momentum
The S&P 500 is capitalization weighted, meaning the larger a company becomes, the greater its influence on index performance. As the largest technology companies continue to rise, their increasing weight further amplifies index returns.
2. Passive investing reinforces concentration
Large inflows into index funds automatically direct additional capital toward the largest companies regardless of valuation. This can create a self-reinforcing cycle in which strong performance attracts more buying, which in turn drives even stronger performance.
3. Quality disciplines naturally resist speculation
Quality-oriented strategies often trim positions that have appreciated rapidly and reallocate capital toward businesses offering stronger long-term value. During momentum-driven markets, that discipline can temporarily appear disadvantageous.
4. Historical precedent exists
Similar periods of narrow leadership occurred during the late-1990s technology bubble and the “Nifty Fifty” era of the early 1970s. In both cases, market concentration became extreme before eventually normalizing.
Importantly, periods like this can create emotional pressure for disciplined investors because concentrated momentum temporarily outperforms broader, valuation-sensitive approaches.
However, history suggests that unusually narrow markets do not persist indefinitely. Over time, market leadership typically broadens, valuations matter again, and diversification regains importance.
The current environment may ultimately say less about the failure of quality investing and more about the extraordinary concentration presently driving the benchmark itself. It is estimated that somewhere between 8% and 14% of investors are invested solely in S&P 500 Index funds and ETFs. While these investors have reaped the full benefit of the expansion of the AI market segment, they will also experience the full brunt of any market “correction” as it pertains to this same segment. As fiduciaries, Curran Wealth Management believes it prudent to diversify our clients’ assets and has built this diversification into our proven strategies. Our Core Growth Equity Strategy continues to be invested for the long term.
While other Curran strategies have had superior recent performance to Core Growth Equity in the current market, they do involve taking on aspects of risk that many of our Core Growth Equity investors may not wish to accept. If you are interested in learning more about these strategies, please reach out to your Private Wealth Manager. Feel free to reach out to Kevin or me as well.
Thank you again for making Curran Wealth Management your trusted advisor.
Sincerely,
Tom Curran
President & Co-CEO
Curran Wealth Management
At Curran we value service over sales and believe quality service yields happy clients. Below is our 4-step process (the first three steps at no cost to you).
A short introductory call for us to get to know one other. During this call we will discuss your financial goals, concerns and hopes for the future.
In this meeting we will go over your current financial situation, take a deeper look at your goals, discuss your risk tolerances, and collect the data necessary to build a formal proposal.
Based on our data gathering session, our Private Wealth Managers will present you with a custom proposal tailored to your needs. We encourage individuals to take the time to evaluate this proposal.
If you are comfortable with the proposal and choose to invest with Curran, our team will be there every step of the way assisting in opening the recommended accounts and facilitating all necessary parts of your onboarding process.
