The Power of Staying Power

Executive Summary

In the search for complimentary strategic or tactical equity exposures, the Solactive US Mega Cap 100 Select Index (“Megacap 100 Index”) can offer a compelling case for inclusion in modern portfolios. It captures the 100 largest companies from the US stock market by market capitalisation¹, excluding firms with ongoing involvement in controversial weapons.

The Megacap 100 Index exhibits a distinct blend of growth and sector diversification, while being less tech-dependent than the familiar Nasdaq 100. It delivers an equity experience that is generally “risk-on,” but supported by historically strong fundamentals, consistent earnings growth, and robust index dynamics. The index presents an opportunity to access leading US companies in a diversified strategy with a unique risk-return profile.

1. The Power of Staying Power

Persistent market leadership in an era of disruption

One of the features of the Megacap 100 is the persistence of its constituents. Historical data shows that companies which break into the top 100 by market cap tend to retain their leadership position over time. Once in, they often maintain or improve their market capitalisation ranking in subsequent years.

In contrast, firms that drop out of the top 100 generally continue to decline in relevance. This “stickiness” suggests that the Megacap 100 captures a cohort of companies that are not just large, but also relatively successful. The index acts as a filter for corporate resilience and strategic adaptability, favouring companies that prove their staying power – not by design or methodology, but implicitly.

For long-term investors, this introduces an element of forward-looking stability rarely associated with risk-on equity strategies. Importantly, while there is no definitive, evidence-backed number of stocks—whether 100, 200, or 300—at which this persistence effect begins to kick in, traditional indices such as the S&P 500 by design aim to represent the broad market and, as such, include companies that may be well past their peak. This inclusiveness dilutes exposure to market leadership. On the other end of the spectrum, ultra-concentrated strategies like “Top 20” or “Magnificent Seven” portfolios introduce significant idiosyncratic risk, and hence often lack the diversification required for core portfolio allocations.

The Megacap 100 Index offers a middle ground: concentrated enough to meaningfully tilt toward winners, yet broad enough to mitigate single-name risk. It is a strategic tool for investors seeking targeted exposure to market leaders without sacrificing portfolio robustness.

2. Risk-On, But Resilient: A Distinct Risk/Return Profile

While the Megacap 100 is unequivocally a “risk-on” strategy—heavily geared toward the largest and often most growth-oriented companies—it has also demonstrated a superior risk/return profile over time. Across multiple market cycles, the index has consistently captured more of the upside during rallies, while showing similar drawdowns compared to the S&P 500.

We divided the last ten years of the S&P 500 performance into rally and correction phases by using drawdowns of at least 10% to identify a correction phase, and the occurrence of a new all-time-high to define a rally phase. We then compared the performance of both indexes over the relevant intervals. Over the past decade, the Megacap 100 Index achieved a rally capture ratio of 1.13, meaning it outperformed the S&P 500 during rising markets. At the same time, its correction capture ratio of 0.99 highlights its ability to hold its ground during downturns. By more traditional measures, the interpretation is equally appealing; with a Sharpe ratio of 0.57, the strategy exceeds that of the S&P 500 at 0.51.

In other words, historically, the Megacap 100 Index as a high-conviction, high-reward equity allocation did not require investors to tamper with their risk budgets.

3. More Than Just Momentum

It is true that megacap valuations are often meaningfully above the broad market and ambitious. Part of these premiums might be explained by herd mentality or FOMO and therefore be considered warning signs by fundamentally oriented long-term investors. However, those premiums might as well be justified by fundamental strength, particularly in terms of profitability and growth perspectives. For instance, the Megacap NTM P/E stands at 24x vs 22.6x in the broader market. Yet current Return-on-Equity consensus estimates for the Megacap 100 Index stand around 22%, compared to 19% of the S&P 500.²

Take the example of the January 2025 index rebalancing: Palantir Technologies (PLTR) was added to the index, while Regeneron (REGN) was removed. Both firms operate in entirely different sectors and should not be compared directly, but the episode is indicative of the dynamics at play here. PLTR’s inclusion came in the tracks of rising analyst target prices and soaring consensus EPS estimates. Regeneron – a pharmaceutical firm known for its monoclonal antibody therapy that was used to treat President Trump during his covid infection in October 2020 – saw its share price surge during and post-pandemic. However, this rise coincided with flat or even falling EPS growth estimates that eventually did hurt the stock.

While the above case is purely illustrative, the broader trend is supported by empirical evidence: over time, the Megacap 100 Index has exhibited a bias toward companies with strong earnings momentum and upward revisions in analyst expectations. As such, the strategy aligns with investors seeking not just positive price momentum but also firms with the potential for a strong fundamental performance.

4. Beyond Tech: A More Diversified Growth Benchmark

Of course, the technology sector, together with communications and consumer discretionary, has performed stunningly well with regards to both fundamentals as well as share prices. But technology need not be the only game in town. The Megacap 100 index offers greater sector diversification. Whereas the Nasdaq 100 explicitly excludes financials and has historically skewed toward technology due to listing patterns, the Megacap 100 draws from the entire U.S. listed universe, including sectors like Financials, Healthcare, and Industrials.

While both indexes share a similar Magnificent Seven exposure, sectors other than the three mentioned above account for nearly 40% in the megacap strategy – almost twice the share compared to the Nasdaq 100.

This broader sector diversification gives the Megacap 100 a distinct profile that sits between the S&P 500 and the Nasdaq. Compared to the latter, it may be better positioned to benefit from secular growth themes outside of tech—think healthcare innovation, digital payments (financials), the energy transition, and infrastructure investments. For investors seeking growth beyond tech, the Megacap 100 provides a balance.

5. Strategic Portfolio Role: From Core Growth to Thematic Allocation

The Megacap 100 can play multiple roles in professional portfolios:

• As a core equity holding, it can deliver long-term growth anchored in market leadership
• As a satellite allocation, it facilitates risk-on positioning in portfolios tilted toward growth and scale
• As a thematic complement to traditional indices, it adds depth beyond broad-market exposures like the S&P 500 or sector-skewed indexes like the Nasdaq 100

Conclusion

The Megacap 100 Index has more to offer in a portfolio context than just size—sustained relevance, fundamental strength, and exposure to the most transformative businesses in the U.S. equity market. With its distinct and favorable risk/reward characteristics and sector diversification, the index can be a precise tool for investors seeking to align their portfolios with structural growth trends of the future.

In a world where market dynamics are increasingly driven by scale and innovation, the Megacap 100 Index can add value as a strategic or tactical allocation to US equities.