With all the talk about a potential rotation from large cap stocks to small caps, we wondered which large cap sectors were the most exposed to so-called mega cap stocks i.e., those companies with market capitalizations greater than $100 billion. Within the S&P 500, there are currently 61 stocks meeting the criteria of a mega cap. As you might have guessed, Technology has the largest number of mega cap stocks with 15, followed by Health Care with 12. On the other end of the spectrum, the Real Estate sector doesn’t have a single mega cap, while Materials and Utilities each have one.
The table below is sorted by sectors that have the greatest exposure to mega cap stocks in terms of the market cap of these stocks as a percentage of the sector’s total market cap. By this measure, Communications Services actually has the greatest exposure with nearly 90% of its market cap coming from stocks with market caps in excess of $100 billion. Behind Communications Services, other sectors with a large exposure to mega caps include Technology, Consumer Staples, and Health Care. If large cap stocks were to fall out of favor, these sectors would likely come under pressure.
In the chart below, the blue bars show the market cap of each stock in the S&P 500 Communication Services sector (left axis) while the red line shows the cumulative market cap of stocks in the sector as a percentage of total market cap. For example, Alphabet’s (GOOGL) $924 billion market cap accounts for 30% of the sector’s total market cap, and then when you add in Facebook (FB), the total market cap of those two stocks accounts for 49% of the sector’s market cap. Moving out further to the right, the top five stocks in the sector account for 75% of the sector’s market cap while the top eight stocks, which each have market caps above $100 billion, account for just under 90% of the sector’s entire market cap. After that, the fourteen remaining stocks in the sector could completely disappear and the impact on the sector wouldn’t be much more than a 10% correction! Start a two-week free trial to Bespoke Institutional to access our research reports, interactive tools, and more.