There was tremendous focus on how important a small number of stocks were to the S&P 500’s nearly 29% surge in 2021.
Perhaps this is typical of sour grapes, as most active managers underperformed the S&P 500 over the past year. Watching the top contributors – Apple, Microsoft, Google, Tesla and Nvidia – soar higher was like watching a speeding train whose destination you are dying to reach. Instead, you just chug along more slowly, fearing the guides might fall shortly after boarding.
Apple and its four giants are up an average of 65% over the past year, more than double the index gain, and accounted for 31% of total returns.
While it may be fascinating to look at a year in isolation, it makes more sense to examine whether this level of concentration is habitual or extreme. We’ve looked at returns over the past 15 years, analyzing each year’s data around the top contributors and their impact on the overall market.
We excluded 2018 and 2008 because they were negative years, which skews the numbers and attributes huge contributions to winners relative to the overall market. This phenomenon also applies to years when the market was basically flat: 2015, 2011 and 2007.
As the table below shows, there was only one year, 2020, when the top 5 had a greater impact on overall market returns than 2021, a staggering 62% versus 31%. These names — AAPL, AMZN, MSFT, NVDA, and FB — were among the biggest Covid-related beneficiaries, with earnings and growth accelerating well beyond Wall Street’s expectations.
Despite the strength of “reopening” trading, three of 2020’s names – Apple, Microsoft and Nvidia – reappeared in 2021 thanks to both their Covid-agnostic earnings growth and sheer market value.
How the top names contributed to S&P 500 returns
| year | S&P 500% change | Top 5 Average Percent Change | Top 5 contributor to S&P returns |
|---|---|---|---|
| 2021 | 28.70% | 65.50% | 31% |
| 2020 | 18.50% | 71.30% | 62% |
| 2019 | 31.40% | 54.70% | 22% |
| 2017 | 21.80% | 44.50% | 24% |
| 2016 | 10.90% | 28.10% | 17% |
| 2014 | 14.70% | 37.50% | 19% |
| 2013 | 33.10% | 48.40% | 9% |
| 2012 | 16.60% | 50.10% | 16% |
| 2010 | 16.50% | 46.60% | 16% |
| 2009 | 24.80% | 69.50% | 20% |
Apple and Microsoft appear in nine of the 10 years shown above. When the largest publicly traded companies dramatically outperform the market, as they have for many of the past 15 years, their increasing weight literally carries more weight the following year. Apple doubled its market cap from early June 2020 to its current $2.8 trillion, which is now about 6.8% of the index. Microsoft has made a similar climb in less than two years: It now accounts for 6% of the S&P 500. Size matters in the contribution game.
Additionally, the fixed-income alternative to stocks is far less compelling when interest rates are as low as they’ve been, so billions flowing into S&P index funds naturally add value to their largest constituents. When the “Trillion Dollar Club” including AAPL, MSFT, AMZN, TSLA, GOOGL and almost FB have strong years, investors will struggle to outperform the average.
However, the past two years seems an anomaly considering that the top five stocks’ contribution to the S&P index has ranged from 9% to 24% in all of the other years mentioned above, compared to 31% and 62% in 2021 or 2020.
The pandemic has changed lives in more ways than one, but the impact of Covid on investors has been dramatic. Only February 2020’s rapid sell-off felt suitably alarmed by a global shutdown: the subsequent rebound to new highs in about six months, the GameStop/AMC Entertainment retail-fueled meme cheer in early 2021, and the 70th S&P record closing throughout the year have felt slightly surreal.
Nvidia is the only stock to appear in both the top 5 and top 15 all-time gainers in the S&P over the past year, suggesting that what’s making it difficult to beat the index isn’t the lack of a cohort of outperformers, but earning power plus weight.
The 15 best-performing stocks in the S&P 500 in 2021
| rank | symbol | Surname | RBICS economy | market value | Price change (LOCAL) |
|---|---|---|---|---|---|
| 1 | dvn | Devon Energy Corp | energy | 33,098.50 | 178.6 |
| 2 | MRO | Marathon Oil Corporation | energy | 14,200.50 | 146.2 |
| 3 | MRNA | Moderna, Inc. | healthcare | 86,709.40 | 143.1 |
| 4 | FTNT | Fortinet, Inc. | technology | 51,446.90 | 142 |
| 5 | SBNY | signature bank | finance | 21,074.00 | 139.1 |
| 6 | f | Ford Motor Company | Consumer Discretionary | 97,668.10 | 136.3 |
| 7 | BBWI | Bath & Body Works, Inc. | Non-cyclical consumer goods | 15,437.60 | 132.2 |
| 8th | NVDA | NVIDIA Corporation | technology | 681,175.00 | 125.3 |
| 9 | CATCH | Diamondback Energy, Inc. | energy | 22,016.30 | 122.8 |
| 10 | NAKED | Nucor Corporation | Non-Energy Materials | 32,706.80 | 114.6 |
| 11 | IT | Gartner, Inc. | technology | 24,621.50 | 108.7 |
| 12 | A NET | Arista Networks, Inc. | technology | 39,787.10 | 97.9 |
| 13 | EXR | Extra Space Storage Inc. | finance | 29,104.90 | 95.7 |
| 14 | WHAT | APA Corp. | energy | 10,778.40 | 89.5 |
| fifteen | SPG | Simon Property Group, Inc. | finance | 60,618.50 | 87.3 |
Mega caps have enjoyed multiple price-to-earnings expansion for almost two years, much of which has been earned due to accelerated adoption of their platforms and overwhelming earnings growth. We’re less likely to see such levels of investor enthusiasm for the same names over the next two years.
So far, 2022 isn’t the same runaway train of high-profile sweethearts we’ve witnessed over the previous two years. Historical data suggests that the most capitalized companies may not dominate performance for the third straight year. The train has left the station. We’ll see if not being fully on board will be a mistake.
Karen Firestone is Chair, CEO and Co-Founder of Aureus Asset Management, an investment firm dedicated to providing contemporary wealth management for families, individuals and institutions.
