Avoid the Size Trap

A mirage created by the declining number of US stocks is disrupting asset allocation. Don’t be fooled.

Philip Lawlor  |   Managing Director, Market Research

May 2024

The decline in US listed stocks combined with over 600% returns over the last 25 years has produced structural changes to the US equity market.

In particular, the definition of Large Cap and Small Cap thresholds has changed radically and legacy index methodologies that use a rigid stock count approach have struggled to accommodate this dynamic and have inadvertently generated a size exposure mirage trap. 

Decline over the last 22 years

Source: Wilshire Indexes. Data as of December 31, 2023.

Market Cap Threshold ranges 1998 v 2023 by value (USD, Mn) – using FT Wilshire Index size thresholds


Source: Wilshire Indexes. Data as of December 31, 2023.

Our latest index research uncovers a major stealth risk facing asset allocators by examining the evolution of the mirage effect, its impact on large and small cap index construction and how legacy stock count indexes no longer capture the size representation investors expect.

Key Takeaways

  • The combination of fewer listed stocks and a total return of c.600% for the FT Wilshire 5000 index since 1998 has changed the definition of a large cap and small cap stock.
  • In addition to the shift in market cap thresholds the market is also witnessing a significant up leg in stock concentration with the top 10 stocks (mainly driven by the Magnificent Seven technology stocks) accounting for 26.4% of the total market cap at the end of 2023.
  • Traditional stock count index methodology has struggled to adjust to the new order—they have encountered ‘drift’ effects reflecting the cannibalization by Large Cap at the expense of Small Cap exposure together with the creation of the ‘size mirage’ with the Top1000 index now split 50/50 between large cap and small cap stocks (by count) and the Next 2000 index now incorporating a significant exposure to micro-cap stocks.
  •   The result of this is that legacy 1000 and 2000 stock count indexes no longer capture the size representation investors expect.
Changing market dynamics need indexes that are adaptive and provide appropriate future proofing.


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