One of the most common assumptions I encounter, from advisors, reporters, and investors building a portfolio for the first time, is that the S&P 500 represents true diversification. Five hundred companies across every sector of the economy. What could be more diversified than that?
The numbers tell a different story, and the story has only gotten sharper. As of the end of March, the index's top ten holdings accounted for nearly a third of the entire fund.¹ By the start of July, that figure had climbed to 36.4%.² In three months, concentration didn't ease. Instead, it grew. Ten companies now account for more than a third of the index.
This same pattern is showing up elsewhere right now, and I think it deserves attention.
Energy has had one of its strongest stretches in years, and that strength has continued to build. Several broad energy ETFs were up more than 20% year-to-date earlier this year;³ by late spring, the largest of them were up roughly 34%.⁴ That performance is real, and it has rewarded investors who held the sector. This is not unique to energy, though. Concentration within energy itself tells the same story concentration in the broader index does: the largest handful of names in many energy funds account for well over 40% of assets.⁵ A strong sector does not automatically mean a diversified position inside it.*
I do not believe this is coincidence. It is a pattern worth naming. When something performs well, capital tends to flow toward the most concentrated, most obvious way to participate in it — not the most disciplined one. Investors chase the trade. Few stop to examine the structure underneath it.
It is similar to flying your own plane, and the principle is one every pilot learns early: you fly the instruments, not the feeling. In a steep turn or strong crosswind, your senses can tell you the aircraft is doing something it is not actually doing. The pilots who get into trouble are the ones who trust that momentary sensation over the discipline of what the instruments are actually showing them. Markets work the same way. A sector running hot can feel like the safest place in the world to be — right up until the structure underneath it tells a different story.
The distinction matters more than it may seem in the moment. Concentration can work powerfully in an investor's favor during a strong run. It can also work just as powerfully against them when conditions shift, such as a single earnings disappointment, a single regulatory development, a single company's difficult quarter can disproportionately affect the entire position. There is a meaningful difference between building convictions around a sector or a structural theme and ending up exposed to two or three companies simply because they were well positioned at a particular moment.
This distinction is at the center of how we build at Yorkville America. We are not in the business of chasing whatever trade is performing this quarter. We build rules-based exposure to the forces we believe are genuinely reshaping the American economy over time — energy, defense, innovation, real estate, digital assets and more, all without concentrating that conviction into a small handful of names. As I discussed in a recent conversation with First Look ETF, our objective was never simply to track the S&P 500 – it was to identify differentiated sources of return and diversification that the index alone does not provide.⁶
Markets have often rewarded concentration over certain periods in the short term. They have a long history of doing so. Three months of fresh data only confirms it. They also have an equally long history of reminding investors, eventually, why discipline holds up when concentration does not.
Learn more about how Yorkville America's rules-based ETF strategies are built at yorkvilleamerica.com.