In recent years, a small group of large technology companies, often referred to as the Magnificent Seven, has come to dominate global equity markets. As of late 2025, these firms represent a significant share of both the S&P 500 and the MSCI World Index. Understandably, this has prompted concern among investors about market concentration and diversification.
While the companies at the top may change, the pattern itself is not new. Throughout history, markets have experienced cycles in which a small group of leaders rises to prominence before giving way to new firms and sectors. This natural process is known as market rotation.
Understanding Market Rotation
Market rotation describes how leadership within markets changes over time. As some companies or sectors mature, others emerge and take their place. This shift is not something that can be predicted with certainty, but it has been observed consistently throughout market history.
For investors following a passive, market-capitalisation-weighted approach, this rotation occurs automatically. When a company grows, it becomes a larger part of an index. When it declines, its weighting falls and capital is redistributed elsewhere. This creates a built-in, disciplined system that adjusts with the market itself, without the need for forecasts or frequent intervention.
Lessons from History
The leaders of today’s market are very different from those of previous decades. In 1999, Cisco Systems and General Electric were among the world’s largest companies. Two decades later, they have been replaced by firms such as Apple, Microsoft and NVIDIA.
A similar pattern has occurred globally. In 1989, Japanese companies accounted for nearly half of the world’s stock market value. Today, they represent less than 5 per cent, while companies in the United States and emerging markets have grown in influence.
Investors who maintained a diversified, index-based approach through these changes automatically participated in these shifts, without needing to anticipate them.
A Disciplined and Patient Approach
Periods of high concentration can create discomfort, but history shows that leadership within markets changes over time as economies evolve. The forces of innovation and competition ensure that new companies continue to emerge and drive growth in different areas of the global market.
For long-term investors, this highlights the potential benefits of staying diversified and disciplined through cycles of change, rather than attempting to predict when rotation will occur.
Read the Full Paper
Our new paper, The Enduring Engine of Progress, examines the evidence behind market rotation and what it has meant for investors over time. The paper explores case studies from the dot-com era, the global financial crisis and more recent periods of market concentration.
→ Download The Enduring Engine of Progress: Why Market Rotation May Be a Passive Investor’s Ally
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