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Many allocators see mounting concern with the same issue: market concentration. And while equal-weight approaches are one of the more common strategies for addressing concentration risk, they come with their own set of investment risks and baggage. Investors may want to consider if the benefits of the cure (equal weight) outweigh the drawbacks of the disease (concentration) and whether alternate options make more sense.



1. Extreme concentration is a hidden risk that has occurred several times in the past 60 years. What’s more, in prior periods of high concentration, the top-five weighted stocks in the S&P 500 Index1 underperformed their lower-weighted counterparts following the periods of extreme concentration (FIGURE 1).

2. But solving for concentration could have unintended consequences: Shifting market-cap and sector allocations can introduce more volatility to your portfolio (FIGURE 2).

3. The Hartford Multifactor US Equity ETF (ROUS) is one possible option that seeks to diversify away from market-cap weighting while mitigating volatility and retaining similar sector exposures (FIGURE 3).




Market Concentration Is at a 50-Year High
Top-5 Weight as % of Top 500 US Stocks


Concentration Doesn’t Always Mean Outperformance

  Dates US Top 5 US Bottom 495
Period 1 4/30/70-8/31/94 10.01% 12.60%
Period 2 2/29/00-9/30/13 -2.57% 3.88%
Full Period 12/31/69-11/30/23 10.36% 10.94%

Chart Data: 12/31/69–11/30/23. Past performance does not guarantee future results. Indices are unmanaged and not available for direct investment. Data Sources: Hartford Equity Modeling Platform and FactSet.


S&P 500 Index Equal-Weight Index May Have Large Sector Bets
Sector Weight vs. S&P 500 Index

As of 11/30/23. * LROLCX is the Hartford Multifactor Large Cap Index. The S&P 500 Equal-Weight Index is the equal-weight version of the S&P 500 Index in which each company is allocated a fixed weight of the index total at each quarterly rebalance. Data Sources: Hartford Equity Modeling Platform and FactSet.


ROUS Had Less Volatility Than the S&P 500 Equal-Weight Index

Potentially Reduce Concentration Risk by Moving Away From Market-Cap Weighting 

Beta vs. S&P 500 Index

As of 11/30/23. Beta is a measure of risk that indicates the price sensitivity of a security or a portfolio relative to a specified market index. Data Sources: Hartford Equity Modeling Platform, FactSet, and Bloomberg.

For more information on systematic investing, please talk to your Hartford Funds representative.


1 S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.

Important Risks: Investing involves risk, including the possible loss of principal. Security prices fluctuate in value depending on general market and economic conditions and the prospects of individual companies. • The Fund is not actively managed but rather attempts to track the performance of an index. The Fund’s returns may diverge from that of the index. • Investments focused in an industry or group of industries may increase volatility and risk. • Diversification does not ensure a profit or protect against a loss in a declining market.

The views expressed here are those of the authors and should not be construed as investment advice. They are based on available information and are subject to change without notice. Portfolio positioning is at the discretion of the individual portfolio management teams; individual portfolio management teams, and different fund sub-advisers, may hold different views and may make different investment decisions for different clients or portfolios. This material and/or its contents are current as of the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Hartford Funds.

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Insight from Hartford Funds
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Head of Client Portfolio Management Systematic ETFs
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Senior Client Portfolio Manager Systematic ETFs
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Client Portfolio Manager Systematic ETFs
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Client Portfolio Manager Systematic ETFs

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