S&P 500 concentration is decreasing. Now it's a stock picker's market.

Source: Barron’s Chinese

Another ‘golden age’ of active management strategies may be on the horizon.

Since the beginning of 2025, the number of individual stocks outperforming the S&P 500 index has increased significantly. The situation where the stock market’s rise was highly concentrated in a few stocks in the previous two years has changed, bringing more opportunities for investors focused on outperforming the benchmark index.

As of last Friday’s close on February 21st, the S&P 500 index has risen by 2.4% this year, with 49% of its components outperforming the index’s increase.

According to MarketWatch’s analysis of FactSet data, if this trend continues, it would mark the strongest participation rate in an uptrend since 2022. So far, this also stands in stark contrast to the performance of the S&P 500 index and its components over the past two years.

Only less than 30% of the constituent stocks outperformed the market in 2023 and 2024, with the most prominent performers being a few large-cap stocks such as NVIDIA( (NVDA), which helped the S&P 500 index to achieve a growth rate of over 20% for two consecutive years.

The number of stocks outperforming the S&P 500 at the beginning of 2025 has significantly increased

Since 1998 and 1999, the S&P 500 index has never been so heavily reliant on the rise of a few component stocks.

Financial professionals point out that this change, combined with the expected increase in individual stock performance dispersion in options trading, may signal good times ahead for struggling active fund managers.

IDX Advisors Chief Investment Officer Ben McMillan said: “Increasing diversification is beneficial to active fund managers.” He believes that another “golden age” of active management strategies may be on the horizon.

The Cboe Dispersion Index, which measures the short-term expected performance changes of the S&P 500 Index components, has recently been on the rise, hitting a three-year high at the end of January.

Option traders expect a more differentiated performance of the S&P 500 components in the next month

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Based on the data of Cboe Global Markets, a global market (, from the Chicago Board Options Exchange, the Cboe dispersion index usually declines as companies release quarterly reports, but in the past few weeks, the index has been rising instead of falling.

There are several reasons for this situation. One is the quality of corporate performance, as expected on Wall Street. The number of companies with profit growth in the fourth quarter is increasing, while before that, profit growth had been highly concentrated in the ‘seven tech giants’.

Another reason is the increasing uncertainty in the US market and economic outlook. Investors have raised questions about the potential risks and returns of the Trump policy agenda, whether it is wise for some companies to make large-scale investments in AI-related infrastructure, and the potential strength of the US economy.

Chicago Mercantile Exchange derivatives market intelligence director Mandy Xu said: “Even against the backdrop of ongoing investor concerns about artificial intelligence, tariffs, and economic prospects, individual stock volatility remains very high.”

The data from S&P Dow Jones Indices) shows that over time, actively managed funds typically struggle to outperform benchmark indices, and this phenomenon has become more pronounced in recent years.

Over the past two years, if active fund managers did not bet heavily on ‘Seven Giants’ such as NVIDIA or Palantir Technologies (PLTR) and Vistra (VST) and other popular momentum stocks, it is almost certain that they have all underperformed the S&P 500 index.

The S&P Dow Jones Global Indices( regularly releases overall performance data of actively managed funds in the United States and other markets, with the most recent update published in October last year, covering the performance of funds in the first half of 2024, highlighting the challenges faced by stock pickers in an era of increasing market concentration.

S&P Dow Jones Indices U.S. index investment strategy manager Anu Ganti)Anu Ganti( said in a press release last October: “The first half of 2024 may be another challenging period for actively managed funds, especially those focused on U.S. or global stocks.”

Recently, the rise of stocks with high valuations such as information technology has stagnated. Meanwhile, consumer staples, financial, and healthcare stocks with relatively cheap valuations have started the year strong. As most of the stocks in the “Seven Giants” struggle, these stocks have stepped in as substitutes.

Nevertheless, according to an analysis by ClearBridge Investments, the 10 largest stocks by market capitalization in the S&P 500 index, including the ‘Big Seven,’ still account for over 37% of the total market value of the index.

The concentration of the S&P 500 remains very high compared to historical levels.

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However, Jeff Schulze, ClearBridge’s Managing Director of Economic and Market Strategy, pointed out that high concentration has at least declined from its peak in 2024, which may indicate that smaller market-cap stocks in the index may continue to outperform.

Schultz said that in the past, when the concentration of the S&P 500 index exceeded the 24% threshold, in the following years, the equal-weighted S&P 500 index often outperformed the market-cap weighted S&P 500 index. Since 1989, this has been the case in 96% of situations.

This is a relatively small-scale research sample. Although the above pattern has not appeared for a long time, it seems to continue so far. As of Monday, February 24, Invesco S&P 500 Equal Weight ETF )RSP(, which tracks the equal-weighted S&P 500 index, has risen by nearly 3% this year, compared to a 2.3% increase in the S&P 500 index.

In addition, other stock markets are also outperforming the US stock market, with popular stock indices tracking the European and Chinese stock markets posting double-digit gains this year.

As actively managed funds find it difficult to outperform the market, more and more investors are putting more money into inexpensive index ETFs. Vanguard S&P 500 ETF )VOO( recently surpassed SPDR S&P 500 ETF Trust )SPY( to become the largest product by assets under management in the U.S. listed ETF market, managing nearly $63.20 billion in assets.