How are new index approaches to mega caps helping to address concentration concerns and increase sector diversification? S&P DJI’s Hamish Preston and DWS’s David Bianco take a closer look at the S&P 100 Ex-Top 20 Select Index to explore the role of the “next 80” in the global equity opportunity set.
[TRANSCRIPT]
Erin Real:
How are new index approaches to mega caps helping address concentration concerns and increase sector diversification?
Hello there, I'm Erin Real from Asset TV, and joining me today for a closer look at the S&P 100 Ex-Top 20 Select Index are Hamish Preston, Global Head of U.S. Equities at S&P Dow Jones Indices, and David Bianco, Chief Investment Officer at DWS Americas.
Hamish, David, thank you so much for being here in studio. We're so happy to have you on this very cold day. But, let's jump right in. I want to start with you, Hamish. And, to set the stage for us, can you walk us through what is the S&P 100 Ex-Top 20 Select Index, including the scale of these next 80 mega-cap companies, how this works. Take us from top to bottom.
Hamish Preston:
Absolutely. So, the index was launched in October 2025, so fairly recently. And, what it aims to do is measure the performance of S&P 100 companies, but, then, avoiding the largest 20 companies in the S&P 100. And, the assessment of those largest 20 companies happens at each annual reconstitution, which happens in June. And, there are quarterly updates to reflect changes to things like free float and shares outstanding. Now, what's important as well is the "Select" element in the index name. That really reflects the fact that the index is capped market capitalization weighted. So, at each annual reconstitution and each quarterly update, no company can exceed 22.5% of the index. And, also, the aggregate weight of companies whose individual weights exceed 4.5%, they can't exceed 48% of the index.
Now what is, I think, really interesting about this index is although the largest 20 companies clearly dominate headlines, if you look at the next 80, they still represent a sizable portion of the global equity opportunity set. At the end of November 2025, the aggregate market capitalization of those 80 companies was USD 13.3 trillion. So, that's more than double the Japanese equity market, as measured by Japan's weight in the S&P Global BMI, which is our global equity index benchmark. And, so, that just reflects, I think, the relevance potentially to investors. What's happening in the marketplace? How is it impacting different countries? Well, this is a huge segment as well. And, also, from a concentration perspective, the largest 5, 10, 20 names in the S&P 100 Ex-Top 20 Select Index, they are more diversified, should we say, than the S&P 100 in terms of their index weight. So, in terms of mitigating concentration risk, that's a potential angle as well for this index.
Erin Real:
David, what are the driving factors in creating a rules-based ETF tracking the index?
David Bianco:
We were responding to our clients. They felt that the S&P 500 or the S&P 100, many large U.S. market-cap indices were becoming, are becoming, very concentrated. So, this is a strategy that reduces that concentration risk of the S&P 500 or S&P 100. And, a few of the things that it does is it reduces sector exposure to the tech industry, tech communications, and certain Consumer Discretionary stocks. So, it reduces exposure to certain digital and AI types of businesses, and it increases exposure to Health Care, Financials, Industrials. The tech companies are good businesses, and many investors want to have exposure, and they probably have significant exposure to that. But, bringing this tool into the portfolio allows them to better manage the exposures to both parts. So, it's a strategy that we're excited about. It's a tool that, we believe, can help investors manage their portfolios better.
Erin Real:
Right. And, Hamish, how has the composition changed over the years for this S&P 100 Ex-Top 20 Select Index?
Hamish Preston:
Sure. So, David mentioned, obviously, as of right now, less exposure to Information Technology and Communication Services and Consumer Discretionary, and those types of sensitivities, have been fairly consistent over time, with more exposure to things like Health Care and Industrials. And, those types of sector exposures really informed index performance over time. If you think recent years, with mega-cap tech leadership, this index has underperformed the S&P 100 against that backdrop. But, where there have been periods of broader market leadership, the S&P 100 Ex-Top 20 Select Index has outperformed. And, I think if you look throughout its history, back to 2001, you see fairly high beta to things like the S&P 500 and the S&P 100, north of 0.95. So, although that's not part of the index objective, and there may be variations, that just shows what you're capturing in this segment with a tracking error of 4% to 5% or so, and fairly similar performance historically.
Erin Real:
And, David, what are the potential applications of this strategy given the current economic environment that we're in?
David Bianco:
Well, the current economic environment in the U.S. economy is still fairly broad-based. It's just that these tech companies and the tech industry, and now with the latest growth in data centers and AI, they've become a really dominant part of many large U.S. cap indices. So, these companies, these large tech businesses, are good businesses, but, we don't want to have an equity portfolio necessarily be dominated by those companies. So, it's an economic environment that is still fairly broad-based. U.S. consumer, Industrials, Financials, Health Care. Health Care is the biggest part of the U.S. economy in terms of spending and jobs and growth. Yet, technology is becoming such a big part of the equity market. By taking this approach to the S&P 100, ex the top 20, which are largely these tech and communication and other types of digital businesses, you can decide what the appropriate allocation is for you.
Erin Real:
Thank you both so much. I really do appreciate it.
And for more information on the S&P 100 Ex-Top 20 Select Index, including S&P DJI's latest research and data, visit the link below.
