The Disparity of US Market Returns | and LA's withdrawal rates revisited

S&P Returns Now Driven by Just a Handful of Stocks

Our PCS Private Clients team recently conducted research into the growing concentration of US equity (share) markets. 

In 2025 year-to-date, just five companies have delivered nearly two-thirds of S&P500 gains, despite representing only 1% of the index. This increasing dominance of a few mega-cap names underscores both the opportunities and risks for investors; participation in them can boost returns, but missing them can mean falling behind. 

Attached, Sean Ashton, as Head of Investments at Private Clients by Old Mutual Wealth, explores this trend in detail and explains how they are navigating it, balancing exposure to market leaders with selective opportunities beyond the top holdings to diversify risk and protect client portfolios.

What this means for investors is that the increasing concentration of returns has important implications for investors. Index investing is no longer a broadly diversified bet. Still, it is heavily dependent on the performance of a handful of mega-cap companies – at least as far as major US indices are concerned. 

For active managers, the stakes are higher than ever: missing just two or three of the top contributors can materially affect portfolio performance relative to the benchmark. 

Historically, periods of high concentration have often preceded market corrections. That said, the companies currently dominating the index are fundamentally strong, with robust business models, healthy balance sheets and strong cash generation. 

Nonetheless, investors should recognise that high concentration amplifies both the potential for gains and the risk of underperformance – when a few big names drive the market, being in them can boost returns, but missing them means falling behind. 

Hiking the Narrow Ridge: Eight Market Themes for Investors | Clyde Rossouw of Ninety One  

In a very similar vein, Clyde Rossouw, Head of Quality at Ninety One, offers investors a map as they navigate shifting US policy, US dollar uncertainty and sharp market swings.  

From Washington to Beijing, from the JSE to the NASDAQ, investors are hiking a narrow ridge – and the ground beneath them is shifting. 

Clyde goes on to say that “global equity exposure must be selective”. Story stocks have shown cracks. Real earnings, real cash flow, real resilience – that’s the anchor.
 
The companies we hold in our global equity portfolios have continued to deliver double-digit US dollar earnings and free cash-flow growth, even as index-level returns wobble. 

Investors should seek exposure to businesses that have actual growth, not those that merely have a perception of growth and high valuation risk – because that’s where real vulnerability lies. 

For the full article, you can read it by clicking on this link below; 

Hiking the narrow ridge: eight market themes for investors   – MyBroadband
 
Living Annuities Withdrawal Rates Revisited  

After my weekly email last week entitled “Why the Very Wealthy Enjoy Living Annuities”, I received an interesting question from one of our clients that highlights an important practical aspect of withdrawal rates from living annuities.    

The question posed was;  

“Thanks for the article. Using the example, this resonates strongly with me. 

Your point on having discussions with the children this side of the grave being more successful is well noted.  

Currently on a 5% per annum withdrawal rate on my living annuity, I do concur with your sentiments to get this lower.  

However, even after the good growth in my portfolio over the last year, taking it down to 4% per annum on the upcoming LA anniversary date is simply still too little for me to live on. 

Any thoughts for me?”    

My reply was that I agreed our client couldn’t reduce his income to the extent that it was too low. This would simply not be realistic.

Rather, a proactive planning approach would be to reduce this over time. 

One isn’t forced to reduce withdrawal rates by 1% incrementally. One can do so to the nearest decimal point, or even use a fixed Rand value. 

The example I then gave was given the good market growth in recent years, he could, as an example, reduce his income withdrawal, subject to affordability, to say 4,8% or 4,6% per annum, on his next upcoming LA anniversary.  

The effect would be that he would still see a good annual inflationary increase in Rand value on an after-tax basis, and would be reducing the overall withdrawal rate.   

He could then keep reducing this over time, by say 0,2% per year, for many years, and this will still increase the income, while simultaneously allowing the capital to keep growing by this amount more over time. 

This will support increasing the capital value over time, that so allows the organic growth of the matching income to increase. 

If he wanted to get his withdrawal rate down to 4% per annum, doing so in good market years means he could realistically achieve this within the next 4-5 years. 

To then get it down to 2,5% per annum would then take around another 5-7 years. 

In the law of compounding returns, this would be using compound interest in his favour. 

*Client permission obtained for sharing this illustration.  

We Have Been Here Before  

Looking at market indices, if you had invested in the US S&P500 exactly five years ago, your investment would be worth 113% more today in rand terms. 

Over the same five-year period, an investment in the local South African FTSE/JSE All Share Index would have delivered a total return of 120%.

Meaning that at this stage, despite US markets doing well, overall SA shares have outperformed US shares. 

Through the swings of market turbulence since the turn of the millennium, here’s a reminder of the overall result of the local South African JSE stock market, highlighting significant events that have occurred along the way;

Friday Food For Thought