Today's S&P 500® is riskier than you think
November 06, 2024
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3 min read
William C. Nygren, CFA®
Partner, Portfolio Manager and Chief Investment Officer – U.S. – Harris | Oakmark
Harris l Oakmark’s Bill Nygren, CIO-U.S., Portfolio Manager, and Robert Bierig, Portfolio Manager, share three reasons why they believe today’s S&P 500® Index has significantly increased in risk over the past few years. They discuss the following key points:
- Why it is misleading to believe a changing S&P 500® Index is a relatively low-risk or almost-no-risk alternative.
- How concentration, style, and valuation risks have all substantially increased in the index over the past few years.
- Why concentration in the top five names in the S&P 500® is at a record high because the five largest holdings now make up about 27% of the index.
- The information technology industry now accounts for 32% of the index.
- The Morningstar growth/value score for the index is now close to an average of 150, meaning the index sits somewhere between a value and a growth fund. In June of this year, that score was 190, making it a highly concentrated growth fund.
- Based on history, they believe the odds of strong performance from the S&P 500® for the next five years look relatively low.
- Today, the S&P scores as riskier than almost 80% of value funds.
Oakmark Fund OAKMX
Oakmark Select Fund OAKLX
The information, data, analyses, and opinions presented herein (including current investment themes, the portfolio managers’ research and investment process, and portfolio characteristics) are for informational purposes only and represent the investments and views of the author and Harris Associates L.P. as of October 2024, and are subject to change without notice. This content is not a recommendation of or an offer to buy or sell a security and is not warranted to be correct, complete or accurate.
The specific securities identified and described in this report do not represent all the securities purchased, sold, or recommended to advisory clients. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time one receives this report or that securities sold have not been repurchased. It should not be assumed that any of the securities, transactions, or holdings discussed herein were or will prove to be profitable.
Investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.
Equity securities are volatile and can decline significantly in response to broad market and economic conditions.
Investing in value stocks presents the risk that value stocks may fall out of favor with investors and underperform growth stocks during given periods.
The S&P 500® Index is a widely recognized measure of US stock market performance. It is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation, among other factors. It also measures the performance of the large-cap segment of the US equities market.
The "price to earnings ratio" (PE) compares a company's current share price to its per-share earnings. May also be known as the "price multiple" or "earnings multiple". Investors should not base investment decisions on P/E alone, as the denominator (earnings) is based on an accounting measure that is susceptible to forms of manipulation. The quality of a P/E ratio is only as good as the quality of the underlying earnings number.
Tracking error measures the standard deviation of the difference between the periodic returns of an investment and its benchmark.
CFA® and Chartered Financial Analyst® are registered trademarks owned by the CFA Institute.
Harris Associates Securities L.P., Distributor, Member FINRA.
Natixis Distribution, LLC (Member FINRA | SIPC), a limited purpose broker-dealer and the distributor of various registered investment companies for which advisory services are provided by affiliates of Natixis Investment Managers, is a marketing agent for the Oakmark Funds.
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