Do Winners Take All?


Published on January 24, 2018

| 3 min read

Richard Yasenchak, CFA, Head of Client Portfolio Management


Have you ever wondered about the persistency of your manager’s alpha source? This is a great question in world of traditional asset management; after all, aren’t market inefficiencies or anomalies simply arbitraged away?

Fortunately, Intech’s alpha source doesn’t rely on fundamentals. We harness stock price volatility and depend on the long-term stability of capital concentration for persistent access to this ubiquitous alpha source. The nature of capital concentration is foundational to both return and risk for Intech.


What is capital concentration?

It’s a measure of how capital is distributed among stocks within an index. Our research shows that the capital distribution among stocks is remarkably stable over time. For example, the largest stock, second-largest stock, third-largest stock, and so on, by market capitalization in the S&P 500 Index tends to represent the same capitalization weight, decade after decade, regardless of its name. This implies that the largest stocks don’t continue to attract all the capital because if they did the distribution curve would become very steep; and if small cap stocks outperform larger stocks over time, the curve would become flat – winners do not take all over the long-term.


Long-term Capital Concentration is Stable









Source: CRSP. Data as of December 31, 2017.

Using it to measure risk

But winners can take all in the short-term because of capital concentration changes. These shorter-term dislocations are a meaningful indicator of equity market stress. That’s why capital concentration is one of the five key measures of risk in the new Intech Equity Market Stress Monitor®.

How do you interpret it?

An increase in concentration means that investors are allocating more capital to larger cap stocks. A decrease indicates that capital is moving to smaller cap stocks. These short-term trends – either way – increase market stress because the distribution of capital tends to revert to the long-term medians as we’ve shown.

For example, the top 50 stocks in the S&P 500 Index typically represent about 50% of the market capitalization. In Figure 1, we find that the market tends to be highly concentrated during a bubble (such as in the late 1990’s), or when a market crisis causes investors to rush towards larger names (such as early 2009). Yet, periods of unusually low concentration also signal potential strain in the market (beginning of 1987) because this indicates excessive groupthink among smaller capitalization stocks.


Figure 1
Capital Concentration of the S&P 500 Index

Percentile Ranks for the Period Ended December 31, 2017








Learn more

Capital concentration is one of five metrics we believe are reliable indicators of equity market stress and a component of the new Intech Equity Market Stress Monitor®. Learn about the other indicators of strain in the market and how to use the monitor in your everyday work by downloading our eBook and quarterly report or watching our webinar below.
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