Key insights
- Analysis suggests a portfolio of the top 10 largest market cap stocks outperforms the SPY benchmark historically. The backtest from 1990-2025 shows outperformance in 27 out of 36 years, with an average margin of 19%. While losses can occur, the top 10 portfolio trails by a smaller margin than SPY. The author argues market-cap weighting is effective, despite concentration concerns.
I have a theory that to beat the SP 500 is holding the top 10 largest stocks by market cap. I backtested the data and investors beat the SPY benchmark 27/36 times with an avg margin of 19%. If losses occur on a yearly return the Top 10 trail by 6% on avg (YTD trailing by 2%)
https://imgur.com/a/top-10-s-p-returns-from-1990-2025-Rg7d2iF
Since the CAGR for SPY is 10%, A compact investment portfolio of the top 10 has potential for 2x returns. There has been worries about how concentrated the Mag 7 is for investment returns on SPY. I would simply state market-cap weighted is working as intended. Let your winners run and cut your losers short
Fun fact - Since 1990, The median tenure for a company to stay in SPY Top 10 is eight years. MSFT currently has a 32 year win streak
I'm open to feedback, pushback, being wrong, etc. I'm pretty sure there's some holes that can be poked and I welcome that. Besides that, enjoy the charts and I hope this gives you a new perspective!
**Data sourced from IBKR API, Yahoo Finance, Finhacker. Also, the $TOPT index follows the Top 20 largest market-caps. Unfortunately, I can't find one for top 10.