Seek intentional alpha in large-cap equities

Outlook 2025Seek intentional alpha in large-cap equities

In recent years, we’ve seen the noticeable trend of increased concentration in market capitalization-weighted indices, and this has significantly affected many large-cap equity indices. Although market concentration has always factored into active investing, passive investors are now finding themselves unintentionally overexposed to a small number of companies with extremely high expectations.

In 2025, it will be imperative for large-cap equity investors to diversify their exposure and seek intentional alpha from multiple sources. A skilled active manager can help.

Investor portfolios may be inadvertently top-heavy​

Large-cap indices have become increasingly concentrated. Near the end of 2024, the “Magnificent Seven,” comprising the top seven companies (out of 500) in the S&P 500® Index, made up 31% of the market capitalization of the entire index, leading to unplanned concentration risk for investors.

Index concentration has greatly increased driven by the "Mag 7"

Large caps theme supporting chart

Source: FactSet. Data as of September 30, 2024, unless otherwise noted. The Magnificent Seven stocks include Apple Inc., Microsoft Corp., NVIDIA Corp., Alphabet, Amazon.com Inc., Meta Platforms Inc., and Tesla Inc.

Three large-cap equity considerations for 2025

Be selective among the “Magnificent Seven” icon

Be selective among the “Magnificent Seven”

  • Despite their being grouped together because of their significant market capitalizations and technological prowess, each of these companies operates in a distinct market segment with unique growth drivers and risk factors.
  • With current valuation levels, these companies don’t have to completely fail to cause significant stock declines. When expectations are extremely high, even slight underperformance can have significant consequences.
  • Some of these companies may earn their high valuation next year, while others may not.
Find true alpha drivers icon

Find true alpha drivers

  • The elevated index concentration can make it more difficult to identify the true alpha drivers for a portfolio.
  • While many investors may focus on a portfolio’s largest 10 holdings as having the biggest effect on overall performance, a portfolio’s “active weights” when compared against the benchmark are typically a better indicator of the largest drivers for excess return and should be a key consideration for investors.
  • Learn more about active weights in, 'Do a fund’s top 10 holdings tell us enough?'
Seek excess return outside of mega-cap stocks icon

Seek excess return outside of mega-cap stocks

  • Investors have been rewarded by investing heavily in the Magnificent Seven stocks over the past couple of years. However, as the market broadens, we believe it will be important for large-cap equity investors to find other sources of return. An active manager can help find untapped alpha opportunities amid the market noise.

Investment solutions to consider

Have questions? —

Contact us. Call 877 693 3546 or contact your regional director.

IMPORTANT INFORMATION

Investing involves risk, including the possible loss of principal.

Diversification may not protect against market risk.

Carefully consider the Fund’s investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Fund’s prospectus or the summary prospectus, which may be obtained by visiting macquarie.com/mam/literature for mutual funds, visiting macquarie.com/mam/etf-literature for ETFs, or calling 877 693-3546 Read the prospectus carefully before investing.

The Macquarie ETF Trust Funds are distributed by Foreside Financial Services, LLC. Foreside Financial Services, LLC is not affiliated with any Macquarie entity, including Macquarie Asset Management and Delaware Distributors, L.P.

ETFs may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market prices (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.

Nothing presented should be construed as a recommendation to purchase or sell any security or follow any investment technique or strategy

Risk is increased in a concentrated portfolio since it holds a limited number of securities with each investment having a greater effect on the overall performance. • The disruptions caused by natural disasters, pandemics, or similar events could prevent the Fund from executing advantageous investment decisions in a timely manner and could negatively impact the Fund’s ability to achieve its investment objective and the value of the Fund’s investments.

Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value and is often used to represent performance of the US stock market.

Alpha is a measure of risk-adjusted performance.

Active weights are the difference in allocation of an individual security or portfolio segment between portfolio and the benchmark.

Past performance does not guarantee future results.

Document must be used in its entirety.

All third-party marks cited are the property of their respective owners.

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