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.
Related insights
The Special Global Equity team identifies three current market conditions, including U.S. large cap concentration, high but falling inflation, and attractive small-cap stock valuations, and explores why they may signal a comeback for global small-cap stocks.