Stock Market Concentration (pt. 4)

I have been using CRSP stock data from the Fama/French data library for recent market concentration analyses. Finding an ETF that closely resembles research data is important so that no hidden variables get added during implementation.

Two ETFs with a long history and a close resemblance to these Fama/French indices are $VO and $VB.

Two other ETFs that closely match the Fama/French indices, and are subject to slightly more discretion by S&P, are $IVOO and $VIOO. These two ETFs do not directly replicate CRSP indices in their construction however, so I do not regard them as highly as the other options.

As someone with a nearly 100% allocation to the S&P 500, this is where I forced myself to take a deep breath. The time-frame for this theoretical correction is long and so there will likely be plenty of time to reallocate into mid-caps and small-caps if the tides shift.

And allocating just 25% of total equity assets to mid-caps and small-caps would be significant, while 50% would be a very strong statement. Consider that the average U.S. equity investor has less than 10% of their stocks currently allocated towards mid-caps and small-caps.

I should stress that actively reallocating investments is not for most people and each of you likely have additional personal considerations (taxes, for example?) before changing your investment mix. Personally, I like finding the line between over-trading vs. complacency, and I feel like being all in on the S&P 500 in the current moment is starting to feel like complacency.

Please reach out if you would like to discuss more!