How are different indices influenced?

Major stock market indices are structures generally shaped by the size of free-float market capitalizations. As a result, many of them are biased toward a specific sector, or even just a few individual stocks.

In France, although Schneider Electric recently became the top weighting in the CAC 40, it is obviously the luxury giants that continue to define the index. By adding up the weightings of L'Oréal (5%), Hermès (3.4%), LVMH (7%), and Kering (1%), we get a total weight of 16.4%. A few years ago, this dynamic was even more pronounced, with a weight close to 40%, driven by the exceptional cycle the sector experienced. 

Another well-known case is the relationship between the technology universe and the S&P 500. The famous “Magnificent 7” alone represent more than a third of the index's movements. Behind them, the financial sector weighs 12%. It was technology that enabled the index to quickly get its head above water after last April's sell-off. However, in October, with investors only having eyes for AI, the question of US market concentration returned to the table. The most cautious were worried to see the weight of the technology sector returning to levels comparable to those of the dot-com bubble. The major difference, however, is that the contribution of these companies to earnings is nothing like that of the era.

The fact remains that investing in an index is less passive than some might think. Investing via DCA in the MSCI World and checking one's portfolio from time to time may resemble a passive approach. On the other hand, choosing one index over another is a real investment decision. Betting on a better performance of small and medium-sized enterprises can, for example, lead toward the Russell 2000 or the equal-weighted S&P 500. Similarly, one also chooses a national index based on the companies that dominate it.

Sometimes, it is not an entire sector, but rather just a few companies – or even just one. With the Korean KOSPI, two companies alone represent over a third of the weighting: Samsung Electronics and SK Hynix. Above all, they occupy very similar positions as champions of memory chips, which have become indispensable to the AI revolution. Since last summer, their share prices have been catapulted by insatiable demand and ever-stronger pricing power. This was all it took to make the KOSPI the best-performing index amongst major national indices in 2025.

In Denmark, the phenomenon is even more visible with Novo Nordisk and its 17% weight. Far ahead of the other companies in the OMX Copenhagen index, the group even played a central role in the country's economic growth and job creation, particularly in 2022 and 2023. However, the euphoria is now over at Novo Nordisk, after missing the opportunity to dominate the massive US market. Since the summer of 2024, the charts of Novo Nordisk and the OMXC perfectly illustrate this reversal in momentum.

In this same category of “one giant and the rest,” the Taiwanese index remains the champion. TSMC, the world's leading semiconductor foundry, represents 64% there, while the second stock in the index counts for  only 4%. Many major indices, moreover, impose a limit on the weighting of a stock or a sector in order to avoid this type of imbalance, which mechanically increases volatility.

Still in the pharmaceutical sector, the Belgian index is also marked by this concentration. A quarter of the Bel 20 depends on UCB and ArgenX alone. This index clearly illustrates the gap that can exist between market capitalization and free float. Four companies largely dominate the rest of the index in terms of capitalization, but the world's largest brewer, AB InBev, is far from being the index leader with a weighting of 10% compared to 7.5% for the insurer Ageas, for example.

The two pharmaceutical companies have been solidly valued thanks to their strong stock market performance over the past two years, which has, in turn, supported the Belgian national index, up 40% over two years.

If one had to name two particularly rewarding sectors in Europe last year, they would undoubtedly be defense and banking. If the FTSE MIB, the Italian index, rose by 31% in 2025, it is partly thanks to the strong presence of banks in its composition. About a third of the index's weighting corresponds to the banking sector. Indeed, there are six banks among the forty companies that compose it.

This imbalance is recurring within indices, and it is better to keep these types of specificities in mind before taking a position. Depending on one's convictions, it can sometimes be relevant to look into equal-weight ETFs.