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Here’s my biggest problem with the ASX today

Well, the S&P/ASX200 (ASX: XJO) index is up again today everyone is getting a little bit richer (on paper at least) and all seems right with the world.

But it pays to remember that before 2019, the ASX had significantly lagged international share markets in performance terms.

Below are 2 graphs, one showing 5 years of ASX 200 returns, the other showing the performance of the US S&P 500 index.

ASX 200

S&P 500

Source: Google Finance

You can see that, whilst the ASX has had a phenomenal 2019, the S&P 500 has dominated in returns over the last five years.

I think there is a very good explanation for this too. If you again check out the 2 graphs below, you can see how the composition for both indices is remarkably different.

ASX 200


S&P 500

Sources: and

As you can see, the S&P 500 is a far more diversified index. The top sector is Tech, which makes up 21.48% of the index. No other sector takes up more than 15%.

Compare this with the ASX 200 and the differences are stark. Financials is our biggest sector at a whopping 30.3% of the market. Apart from Materials at 18.3%(read: mining companies), all other sectors come in at less than 10% of the total market.

That means that almost half of the ASX is weighted towards banks like Commonwealth Bank of Australia (ASX: CBA) and mining companies like BHP Group Ltd (ASX: BHP).

Is this a healthy growth mix to take us forward into the 2020s and beyond? I’m not too convinced myself.

Foolish takeaway

If your portfolio or super fund is heavily concentrated to an ASX index fund, or banks and miners, it might be time to consider some diversity. I don’t see the future of world growth dominated by our banks, and resource companies are always cyclical.

A simple S&P 500 index fund like the iShares S&P 500 ETF (ASX: IVV) might be a good way to get out of the ASX house if you share my concerns.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.