Broker Check

It's Worse than you Think

| October 27, 2023

Let's talk about Long bonds and the S&P 493. There is no such thing as the S&P 493, but still.

Long dates bonds are down almost 43% as measured in the year to date performance of the exchange-traded fund (ETF) TLT since this time three years ago (I’m writing this on October 27, 2023). There’s been times this year where the losses have been as high as 48%. This is record territory and shows that bonds, especially bond funds, are not the safe haven we may have once thought.

But, that’s okay, the SP500 is way up year to date. As measured by the SP500 ETF, SPY is up over 9% year to date. On august 1, it was up 20% year to date. Life is good. However, if we dig deeper we realize that Pareto is hard on work on this one.

The Pareto Principle is also known as the 80/20 rule. When applied to an index it would mean that 20% of the stocks in the SP500 produce 80% of the results. Actually, it’s more concentrated than that. 

As of October 6, 2023 if you take the top 7 stocks of the SP500, the performance from January 1 to October 6 is 92%. Keep in mind, the SP500 is weighted by market size, called market capitalization. Bigger companies have a bigger influence on performance.

If you take the remaining 493 stocks and equally weighted them, the performance from January 1 to October 6, 2023 the performance of the SP500 is now 0.1%.

That’s not healthy. If you’d like to discuss further, let’s book a call here.