Beating the S&P 500: The Case for XLG, the S&P Top 50 ETF

Why Concentration Beats Diversification in Today’s Market

S&P 500 investors should take note. You’re not as diversified as you think. If 50 of the 500 stocks, the top 50 in particular, can consistently outperform the full capitalization weighted 500, why focus solely on the latter. In fact, why focus on it at all?

This is a market driven by big stocks getting bigger. Unless and until that changes in the mindset of traders (I doubt it will soon), XLG is likely to continue to perform above SPY and its peers. If that’s the case, I doubt XLG’s 0.09% expense ratio will stand in the way, versus the slightly lower rates of SPY and the rest.

Performance Through Bull and Bear Cycles

While this year’s historical anomaly, where the stock market fell 20% faster than nearly any time in recorded history, then popped right back to new highs within months, was a rare dent in XLG’s record versus SPY. It is still nicely ahead over the past 1 year, and the 5-year and 10-year margins really add up, when we consider the effect of compounding those returns.