US stocks outpaced non-US stocks in the first seven months of 2023, adding another data point to a decade-long stretch of US market dominance. While some investors may see this as further reason to question the benefit of global diversification, it’s important to note how much of this year’s US advantage stemmed from a handful of stocks.
The top seven contributors to the US market—Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta—have returned a collective 66.3%, accounting for a sizable portion of the Russell 3000 Index’s more-than-six-percentage-point outperformance vs. the MSCI All Country World ex USA Index. Without these seven stocks, the Russell 3000 return falls from 20.3% to 10.8%, which would lag the non-US index with or without its top seven contributors.
Of course, market concentration cuts both ways: benefiting in some periods (like this year) and detracting in others. One of the big selling points for global diversification is reducing your portfolio’s concentration, helping to mitigate the ups and downs from a handful of stocks. For example, the 25 largest US stocks account for about 38% of the Russell 3000 Index but just 23% of the globally diversified MSCI All Country World IMI Index.1
By Wes Crill, PhD
Senior Investment Director and Vice President
1. Weights as of June 30, 2023.
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