U.S. large cap equities exhibited strong performance during the first half of 2023. The ICE U.S. 500 Index (ICEUST5) which measures the performance of the top 500 U.S. listed companies as ranked by unadjusted market capitalization, returned 17.26% in the first half of the year1. By contrast, the ICE U.S. Small-Mid 2500 Index (ICEUS25K), representing small and mid-cap U.S. equities, returned a more modest 9.01% during the same period. Clearly, the securities of larger U.S. companies have been outperforming smaller ones - but why?

Part of the answer lies in the fact that dispersion in performance was not limited to size. To set the stage, sector weights2 were quite different when comparing the ICEUST5 and ICEUS25K indices at the end of last year:

The larger market capitalization constituents of the ICEUST5 were generally overweight in the tech-related Technology and Media & Communications sectors. That said, the tech-related Consumer Discretionary sector was also notably slightly underweight in the large cap ICEUST5 compared to the small/mid cap ICEUS25K. Nevertheless, when analyzing the more granular tech-related Online & Direct Retail sub-industry within that sector, the same tech-related overweighting is evident at the end of 2022:

As we headed into 2023, the larger cap ICEUST5 index was clearly tilted toward tech-related companies. How did that evolve during the first half? It was clear that the sector performed relatively well when analyzing sector weight differences between the start and end of the six-month period:

The three tech-related sectors all had significant sector weight increases, with the Technology sector leading the way, rising by 5.51% to 28.03% during the first half.

This is further evidenced when looking at the performance of the individual ICE U.S. 500 uncapped sector indices during that period:

Dissecting the ICEUST5 returns further, we can derive the constituents with the top positive contributions to index return. This is calculated from the total return of the individual securities being combined with their weight in the index:

* Alternate share class of issuer included in the NYFANG index

As the above table demonstrates, a large part of the 17.26% first-half ICEUST5 index return was derived from the top three (7.59%), top five (10.09%) and top 10 (13.04%) contributors to return. It further shows that the top 20 positive contributors to the ICEUST5 return during the first half were mostly sourced from tech-related sectors. In fact, the top eight positive contributors to the index return, as well as 10 of the top 14 contributors, were all securities issued by companies also contained in the tech-focused NYSE FANG+® Index (NYFANG).

NYFANG, an equal-weighted equity benchmark designed to track the performance of 10 highly-traded growth stocks of technology and tech-enabled companies in the technology, media & communications and consumer discretionary sectors, had a positive return of over 74% in the first half alone. While the performance dispersion of NYFANG was lower (i.e., more even) than ICEUST5, there were two securities with outsized positive performance contributions to the index year-to-date in 2023 - NVIDIA Corp. (NVDA) and Meta Platforms Inc. (META).

To recap, the performance of U.S. equities has been led by large cap equities during the first half of 2023. This has been largely attributed to the high starting exposure to technology and tech-related sectors, which only rose throughout the first two quarters as the rally in technology picked up. In addition, the main drivers of return for U.S. large cap equity indices like the ICE U.S. 500 have been concentrated in a handful of companies. Indices like the NYSE FANG+ Index have a focused exposure to many of these names, which has led to even more robust returns so far in 2023.3