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The S&P 500 and other indices have experienced a decline in diversification, presenting a risk to investors as 70 companies, constituting about 28% of the index, and 35 companies, representing over half the weight, dominate the market as of September 30th, 2023. Information technology stocks, particularly Apple and Microsoft, have surged to comprise over 28% of the index, contributing to its top-heavy nature with concentrated weightings in a few high-valuation and high-beta technology names. This concentration raises the index's volatility, as any negative news affecting these companies could disproportionately impact overall market performance, emphasizing the potential drawbacks of cap-weighted index funds and the advantages of active equity management strategies, such as those employed by Glenmede Investment Management.
