The S&P 500 was introduced in 1957 as a simple way to track the performance of the 500 leading U.S. companies. The Index has since become the core equity holding for many investors. Seventy years on, that core is carrying unprecedented concentration in a limited number of companies, introducing unintended risks and leaving investors less diversified. Moreover, the S&P 500 and S&P 500 Equal Weight overlap has significantly decreased as a result, introducing higher tracking error for equal weight investors. Tema has launched the S&P 500 Historical Weight ETF (DSPY) as a solution, the first innovation on S&P 500 concentration since 2003.
Key TakeawaysThe U.S. equity market has become dominated by a handful of companies. The top 10 companies in the S&P 500 now account for almost 40% of the index, a 50-year high. This kind of concentration exposes investors to underappreciated risks, for example around single stocks.
The DSPY ETF is the first S&P 500 concentration innovation in over 20 years. DSPY is identical to the S&P 500, but weights positions based on their 35-year historical average weight index ranking, offering a more balanced market exposure.
S&P 500 concentration has climbed sharply in the past five years to reach historic highs. As of early 2025, the top 10 companies in the S&P 500 represent nearly 40% of the index, significantly surpassing levels seen even during the dot-com bubble.
The outsized concentration of these large firms is illustrated by comparing to the remaining index constituents. The largest company in the US market today, Apple, is nearly 700 times larger than the 75th percentile company (itself bigger than three quarters of the market). An investor would have to go back to 1932, and the extremes of the monopoly age, to see such concentration levels.
Source: Goldman Sachs GIR. Universe consists of US Stock with price, shares, and revenue data listed on the NYSE, AMEX, or NASDAQ exchanges. Series prior to 1985 estimates based on data from the Kenneth French data library, sourced from CRSP, reflecting the market cap distribution of NYSE stocks.
For investors, buying a concentrated S&P 500 exposes them to a series of potential risks:
History suggests that high concentration is associated with lower long-term returns—regardless of the economic backdrop. The chart below illustrates this relationship by measuring concentration as the market cap of the largest stock relative to the 75th percentile stock. Today, that ratio exceeds 700x. If historical patterns hold, this level of concentration would correspond to a projected 10-year forward return of approximately –5%.
Source: Goldman Sachs GIR. Past performance is no guarantee of future result.*Market concentration is defined as the market cap of the largest stock relative to the 75th percentile stock; grey observations are recessions. Data from 1925 to 2025. Universe consists of US Stock with price, shares, and revenue data listed on the NYSE, AMEX, or NASDAQ exchanges. Series prior to 1985 estimates based on data from the Kenneth French data library, sourced from CRSP, reflecting the market cap distribution of NYSE stocks.
Higher concentration levels tend to lead to higher volatility, due to increased sensitivity of the index to movements in a small number of stocks. Higher volatility combined with lower future returns can start to negatively impact risk-adjusted returns.
Source: Goldman Sachs GIR as of November 24, 2024.
Another aspect of today’s concentrated market is the valuation differential between the largest companies and the broader index. Today, the median price-to-earnings (P/E)1 ratio of the top 10 constituents of the S&P 500 (30x) is not only much higher than history, but meaningfully higher than that of the rest of the index (19x). This didn’t matter as much when the index was more diverse, but S&P 500 holders today may be taking considerable valuation risk given outsized exposure to these mega-cap companies.
Structurally elevated concentration may imply that traditional S&P 500 exposure no longer provides the level of diversification historically associated with the index. With a larger share of performance coming from a narrower subset of companies, portfolios may become more vulnerable to single-stock shocks.
Nvidia, currently the second largest company in the index by market cap, holds the unfortunate record of eight of the ten largest market cap losses in history. Just three months ago, the stock experienced the largest single-day market cap loss in history at $590bn.
Historically this would be of limited concern to investors buying a diversified S&P 500. Today exposure to volatile single stock risk can affect risk management, return predictability, and undermine the role that S&P 500 plays as a core U.S. large-cap equity exposure in an overall asset allocation framework. For investors seeking to maintain market exposure while minimizing reliance on any single company or group, addressing concentration risk becomes a key consideration.
DSPY (Tema S&P 500 Historical Weight ETF) offers investors a way to stay invested in the S&P 500 but with lower concentration risk. DSPY includes the same companies as the S&P 500 and follows an identical methodology in terms of inclusion, exclusion and rebalancing.
The innovation lies in how the weights are determined, DSPY replaces the current market-cap weights with the historical average weights by index position, calculated over a 35-year period since 1989.
DSPY offers a low-cost solution to deal with concentration risk while still retaining exposure to the S&P 500, all in the efficient wrapper of an ETF. It’s a strategy derived from 35-years of S&P 500 data, as seen in the DPSY ETF benchmark, the DSPYTR Index.
Expense ratio source: Bloomberg, as of April 1, 2025. Total expense ration of 0.18% represented for DSPY. Lipper Multi-Cap Value Funds Classification , median expense ration is based on open-end, no-load mutual funds and ETFs; excludes funds of funds. An investment cannot be made directly into an index. ETFs generally have lower expenses than mutual funds. ETFs can be traded throughout the day, whereas mutual funds are traded only once a day. While extreme market condition could result in liquidity for ETFs, typically they are still more liquid than most mutual funds because they trade on exchanges. While it is not Tema’s intention, there is no guarantee that the funds will not distribute capital gains to its shareholders. Capital gains source: Lipper as of September 30, 2023. Lipper Multi-Cap Value Funds Classification average annualized capital gains rate (%NAV) are based on open end, no-load mutual funds and ETF; excludes funds of funds.
The S&P 500 tracks the performance of the largest 500 publicly traded U.S. companies, ranked by float-adjusted market capitalization. The company with the largest market cap occupies position 1, the second largest occupies position 2, and so on till position 500. For example, Apple currently holds the top position in the index because it has the largest market cap.
DSPY seeks to maintain this ranking structure, mirroring the S&P 500’s constituent order. What changes is the weight assigned to each position. Instead of using current float market-cap weights, DSPY assigns historical weights to each index rank.
Source: Bloomberg. Note: Monthly closing weights as of end of month. Historical Weights calculated starting Dec 29, 1989, till current date and takes into account new monthly data as it becomes available. Holdings are subject to change. It is not possible to invest in an Index.
Each rank, 1 to 500, has a historical weight determined by taking average of all monthly weights going back to December 1989. For example, the largest stock in the index was weighted at 7.6% in December 2024, 3.65% in February 2005, and 2.68% in January 1990, and so on, making its average weight 3.9% since 1989. That historical average becomes the weight for the top-ranked company in the S&P 500 today, currently Apple. The same method is applied across all 500 positions, preserving the structure of the index while reducing concentration.
By design, DSPY holds the same companies as the S&P 500 and retains their ranking. However, each rank’s weight reflects its 35-year historical average. As a result, the top 10 holdings in DSPY are the same as those in the S&P 500, but at reduced weights because of today’s high S&P 500 concentration. For example, the top company in the S&P 500, Apple, is weighted 7.1%, but is reduced to 3.9% in DSPY, its rank’s historical weight.
Source: Bloomberg as of 04/01/2025. Holdings are subject to change.
This more evenly distributed weighting helps reduce concentration and reliance on any single company for overall performance.
Beyond headline exposure to the top holdings, there are several metrics that illustrate how DSPY compares to both the traditional S&P 500 and equal-weight approaches in terms of overall concentration.
Source: Bloomberg as of 04/01/2025. Holdings are subject to change.
The most telling metric is the effective number of holdings which is derived from the Herfindahl-Hirschman Index (HHI)2 of concentration. Today the S&P 500 has an effective number of holdings of 53 – indicating that it behaves like a portfolio of just 53 companies. Equal weighting each position dramatically improves the effective number of holdings back to 500 but does so by introducing a significant deviation from the S&P 500.
DSPY offers a balanced alternative. With an HHI of 84 and an effective number of holdings of 119, it meaningfully reduces concentration without departing entirely from the index’s foundational logic. These concentration levels are not arbitrary, they reflect the long-term average structure of the S&P 500 itself. Over the past 35 years, despite having 500 constituents, the S&P 500 has on average exposed investors to the equivalent of just 119 effective stocks. DSPY reintroduces that historical breadth, offering investors exposure that is both diversified and rooted in the index’s enduring structure.
Alternatives to the S&P 500 are not new. Ranging from simple equal weight indices to more complicated capped and sector neutral approaches, all attempting to “balance” or risk-manage compared to the S&P 500. Doing so, however, introduces other problems and structural biases.
In an equal weight index every stock is weighted the same, ignoring market cap entirely. This means the weight of Apple, Microsoft and Google would be identical to the weight of American Airlines and Chipotle Mexican Grill.
Though this approach is intuitive, it results in a very significant deviation from the S&P 500. This deviation has recently gotten to a multi-decade high. One way to see this is to measure the active share of the equal weight index against the S&P 500 index. Active share is a measure of how much a portfolio’s holdings differ from the S&P 500, expressed as a percentage, with higher values indicating more active management. The active share of the equal weight index today is 53%, which is equivalent to the average active share of US large blend funds that are actively managed. In short, buying the equal weight is taking the same deviation and track error3 to the S&P 500 as the average active manager does.
DSPY addresses concentration risk—without high tracking error or introducing additional biases. Its design allows investors to retain familiar S&P 500 characteristics while reducing the influence of recent market leadership.
Source: Bloomberg as of 04/01/2025. Equal Weight represented by the S&P 500 Equal Weight Index.
The S&P 500 is currently shaped by unprecedented concentration. Historical data suggests that such environments are often associated with higher volatility and lower forward returns.
DSPY seeks to offer a way to remain invested in the full breadth of the S&P 500 while reducing reliance on a small number of companies. By using historical average weights, DSPY provides a transparent, rules-based solution that restores balance to U.S. large-cap exposure.