Insight
Equity Rotation & the Debt Wall: What Investors Should Know
We discuss two risks investors face: 1) the increased risk in strategies mirroring the S&P 500 as just a few holdings drive its results, and 2) the huge wall of corporate debt maturing in 2025–2029 that will need renewal at much higher rates.
Key takeaways
- Investors in passive strategies that mirror the S&P 500 are now overexposed to a narrow handful of stocks.
- Since 2000, in similar situations where concentrations reached historically high levels, value stocks outperformed growth stocks over the next 12 months.
- In the 2010s and early 2020s, companies took advantage of the low rates by issuing low-cost debt. Much of that debt is starting to mature, and refinancing rates are now much higher.
- Strong, quality companies are much more likely to succeed in this environment, while weaker companies—predominantly found in passive indexes—could struggle.
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