Insights

Opportunities outside US Mega-caps

AI and mega-cap equities continue to attract attention from investors. While technology transforms societies in impressive ways, does it also distract us from other compelling opportunities?

07 July 2026

Bruce Raymond Apted

Head of Portfolio Management – Asia Pacific, Systematic Equity Active

Mega-cap recap in the last 3 years

Mega-caps have been major beneficiaries from the AI revolution, cloud and digital innovation. They have seen real earnings upgrades and contributed to the majority of the index returns (more than 50% of returns in both 2024 and 2025 for the S&P 500 index). In terms of concentration, they have gone from 24% of the index to 39% of the index in just 3 years. Valuations are now twice as expensive at 48.9x from 23.3x in just 3 years. We have also seen the Mega-caps become more volatile (the beta has increased from 0.93 to 1.38 over the last 3 years).

Figure 2: Top 10 Mega-caps - Concentration, Contribution to Return, Valuation and Risk (Beta)

Year (YTD)	2023	2024	2025	2026
S&P 500 Total Return	26.3	24.9	17.9	8.5
Top 10 Mega-caps	Apple	Apple	Apple	NVIDIA
	Microsoft	Microsoft	NVIDIA	Apple
	Amazon	Amazon	Microsoft	Microsoft
	Berkshire	NVIDIA	Amazon	Amazon
	Alphabet A	Alphabet A	Meta A	Alphabet A
	UnitedHealth	Meta A	Tesla	Broadcom
	Alphabet C	Alphabet C	Alphabet A	Alphabet C
	Johnson & Johnson	Tesla	Broadcom	Meta A
	Exxon Mobil	Berkshire	Alphabet C	Tesla
	JPMorgan	JPMorgan	Berkshire	Berkshire
Benchmark weight	24.4	30.9	37.3	39.2
Contribution to S&P500 Return	41.6%	57.0%	50.3%	15.9%
Valuation -P/E FY1	23.23	33.17	42.05	48.93
Beta	0.93	1.26	1.30	1.38

Source: Factset, State Street Investment Management as of 11 June 2026. Past performance is not a reliable indicator of future performance.

Relative opportunity set is changing

Sustaining elevated earnings growth is becoming more challenging for mega-caps as expectations rise and investor scrutiny increases, particularly around the ultimate returns from AI-related capex. At the same time, early signs of rotation are emerging: equal-weighted indices have begun to outperform cap-weighted benchmarks in 2026, reflecting improving performance from smaller-cap stocks. Value has regained relevance, with cheaper companies outperforming more expensive peers. Performance has also broadened across regions including Europe, Japan, and emerging markets and sectors, with Financials, Industrials, and Utilities showing relative strength versus technology.

Figure 3: Our most preferred regions & industries in 2026

Sector	Industry	North America	Europe	Japan	China
Utilities	Gas Utilities		Q72, V69, S71	Q74, V70, S59
Utilities	Independent Power and Renewable Electricity Producers			Q99, V96, S88
Utilities	Multi-Utilities		Q72, V67, S57
Utilities	Water Utilities				Q74, V81, S55
Communication Services	Diversified Telecommunication Services				Q72, V86, S42
Communication Services	Wireless Telecommunication Services		Q73, V60, S71
Consumer Staples	Household Products	Q73, V74, S51
Health Care	Health Care Equipment & Supplies			Q72, V64, S60
Health Care	Pharmaceuticals			Q71, V76, S56
Consumer Discretionary	Distributors		Q72, V73, S57
Financials	Banks		Q74, V69, S68
Financials	Insurance			Q71, V66, S67
Industrials	Industrial Conglomerates				Q81, V85, S60
Industrials	Trading Companies & Distributors			Q76, V62, S71	Q97, V98, S69
Industrials	Transportation Infrastructure	Q76, V61, S61
Information Technology	Communications Equipment	Q79, V55, S76	Q87, V53, S92
Information Technology	Semiconductors & Semiconductor Equipment	Q74, V36, S85
Information Technology	Technology Hardware Storage & Peripherals	Q71, V54, S67
Energy	Energy Equipment & Services		Q82, V72, S77	Q75, V51, S50
Energy	Oil Gas & Consumable Fuels		Q77, V70, S77	Q79, V75, S60

Source: State Street Investment Management, as of 31 May 2026. Preferred is defined when the average of our Quality (Q), Value (V) and Sentiment (S) scores exceeds 70 out of a possible 100.

The opportunity set beyond mega-caps remains broad and attractive, spanning thousands of companies across regions and sectors, offering improved diversification and reduced concentration risk relative to cap-weighted indices. Valuations are generally more supportive, with lower multiples compared to mega-cap peers, alongside more consistent earnings profiles and dividend generation that contribute to income and stability. This segment also presents stronger alpha opportunities, given greater inefficiencies and dispersion across sectors, regions, and factors.

Regionally, opportunities span North American mid- and small-caps, Europe and Japan benefiting from cyclical recovery, and Asia-Pacific and emerging markets providing structural growth and diversification, supporting a more balanced and resilient portfolio construction approach.

Bottom Line

Mega-cap leadership remains strong but increasingly priced in. Elevated valuations and narrow breadth point to growing fragility at the top of the market, while a broader global opportunity set is re-emerging across the MSCI ACWI universe. With early signs of rotation building, the case strengthens for a more diversified, systematic approach to core equity exposure — one that can improve resilience and risk-adjusted returns.

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Disclosure

Issued by State Street Global Advisors, Australia Services Limited (AFSL Number 274900, ABN 16 108 671 441) ("SSGA, ASL"). Registered office: Level 14, 420 George Street, Sydney, NSW 2000, Australia · Telephone: 612 9240-7600 · Web: ssga.com.

State Street Investment Management is the business name for State Street Global Advisors, Australia, Limited (AFSL 238276, ABN 42 003 914 225) (“State Street IM”), the parent entity of SSGA, ASL.

References to the State Street Global Index Plus Trust and State Street Global Index Plus (Hedged) Trust ("the Funds") in this communication are references to the managed investment schemes domiciled in Australia, promoted by State Street IM, in respect of which SSGA, ASL is the Responsible Entity.

This material is general information only and does not take into account your individual objectives, financial situation or needs and you should consider whether it is appropriate for you. You should seek professional advice and consider the Product Disclosure Statement, available at ssga.com, before deciding whether to acquire or continue to hold the Funds. Target Market Determinations are also available at ssga.com. This material should not be considered a solicitation to buy or sell a financial product or security.

Investing involves risk including the risk of loss of principal. Please refer to the product disclosure statement for the specific risks associated with investing in the funds.

Equity securities may fluctuate in value and can decline significantly in response to the activities of individual companies and general market and economic conditions.

Companies with large market capitalizations go in and out of favor based on market and economic conditions. Larger companies tend to be less volatile than companies with smaller market capitalizations. In exchange for this potentially lower risk, the value of the security may not rise as much as companies with smaller market capitalizations.

The value style of investing that emphasizes undervalued companies with characteristics for improved valuations, which may never improve and may actually have lower returns than other styles of investing or the overall stock market.

The views expressed in this material are the views of Bruce Apted, through the period ended 30 June 2026 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

This article may contain certain statements deemed to be forward-looking statements. All statements, other than historical facts, contained within this document that address activities, events or developments that State Street IM expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions and analyses made by State Street IM in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances, many of which are detailed herein. Such statements are subject to a number of assumptions, risks, uncertainties, many of which are beyond State Street IM’s control. Please note that any such statements are not guarantees of any future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.

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