The Index Is Not What It Used to Be

Fifty years ago, roughly 90 percent of the S&P 500's value sat in tangible assets. Those were on the balance sheets of the companies inside it. That ratio has inverted. Most of an index fund's value today comes from intangible assets: brands, software, networks, future growth expectations. Not from factories and inventory an investor could point to.

That shift matters more than a single statistic. It changes what buying the market actually means, and who is setting the price.

What actually changed inside the index?

The composition of what gives a company its value.

Dror Poleg made the comparison directly in June 2026: "So if you look at something like the S&P 500 50 years ago, 90% of the valuation of the whole index was almost one to one to the tangible assets on the balance sheets of the companies that constituted the index."

A tangible-asset-heavy index gets valued the way an investor would value a collection of factories: replacement cost, earnings on physical capital, book value. An intangible-heavy index is valued on expectations instead: a network effect, a brand, a growth trajectory with no equivalent line on a balance sheet. The valuation logic itself has changed underneath the same index name.

Who actually sets the price now?

Increasingly, buyers who are not making individual judgments about any company at all.

Mike Green has argued that passive investment flows have become the dominant force in price formation. In September 2026 he put it directly: "It's simply to take the reality that the passive players are now the marginal source of flows and shift our analysis to better understanding what they're going to have to buy and what they buy and how what they buy reacts to those purchases."

A passive flow buys the index in proportion to its existing weights, regardless of what anything inside it is worth. That mechanically reinforces whatever is already largest. Money flowing into an index fund buys more of the biggest holdings by construction. That makes them bigger, which attracts more flow. Green frames this as the single most important factor in market price behaviour today, ahead of traditional valuation models.

Does that mean traditional analysis stopped working?

Green's argument is narrower and more precise than that. He is not saying fundamentals are irrelevant, but that they are not the marginal price-setter anymore.

He explained the shift in September 2026: "You're sort of saying like not all of the traditional models because the nature of the system has changed so much with passive flows and with algorithms dictating it that it's not that they don't matter but they're not the indicator."

Fundamentals still matter for how a company's actual business performs. What has changed is that the largest source of flow into and out of the market is not evaluating those fundamentals at the point of purchase. It is buying an index, and the index buys whatever is already large.

Why does a broken correlation matter here?

Because it explains why old relationships between markets can fail without any obvious fundamental cause.

Green used a specific example of a relationship that stopped holding, describing an old rule of thumb as no longer applicable: "That relationship must have disappeared." His broader point is that just like the shift toward passive investing, a break like that usually means a marginal buyer appeared for a period of time who behaved in a certain fashion.

His point generalises. When a historical correlation between two markets or assets breaks, the explanation is not always that the underlying fundamentals changed. Sometimes the marginal buyer changed, and a mechanical flow now dominates where a valuation-sensitive one used to.

Does concentration make the index riskier?

It changes the nature of the risk rather than simply increasing or decreasing it.

An index dominated by a small number of very large, intangible-heavy companies gives you narrower diversification than the number of names in the fund suggests. It also means the fund's return depends heavily on whether investors keep awarding premium valuations to those specific business models. That is a bet on sentiment and structure as much as on earnings.

That is not automatically a reason to avoid index funds. It is a reason to understand what you actually own when you buy one. That is different from what an index fund owned fifty years ago under the same name.

What would change this dynamic?

A sustained reversal of passive flows, which would return marginal price-setting to valuation-sensitive buyers. Or a period where large intangible-asset companies underperform smaller, tangible-asset companies for long enough to change what dominates index weights. Or a structural change in how index construction itself works.

None of those appear imminent, which is itself informative. The dynamic Green and Poleg describe has been building for years and shows no sign of a near-term catalyst to reverse it.

What should you watch?

The concentration of the top ten holdings as a share of total index value, which is published regularly and shows the trend directly. Net flows into passive versus active funds, which shows whether the marginal buyer is shifting. And whether valuation gaps between the largest holdings and the broader index widen or narrow over time. That shows whether fundamentals are reasserting themselves at the margin.

FAQ

Why has the S&P 500 become more concentrated? Partly because a small number of large, intangible-asset-heavy companies have grown to dominate index weight. And partly because passive fund flows mechanically buy more of whatever is already largest.

What does it mean that 90 percent of the index used to be tangible assets? Fifty years ago, the value of S&P 500 companies closely tracked the physical assets on their balance sheets. Today, most index value comes from intangible sources like brands, software and growth expectations, which are harder to value with traditional methods.

Do passive flows actually move prices? Green argues they are now the marginal source of flows in the market. That gives them more influence on price formation at the margin than fundamentals-driven buying.

Does index concentration make investing riskier? It changes the nature of the risk. Diversification within a concentrated index is narrower than the number of holdings suggests. Returns depend more heavily on sentiment toward a small number of business models.

Why do historical market correlations sometimes stop working? Green's argument is that a changed marginal buyer can break a correlation with no change in underlying fundamentals. Passive flows replacing valuation-sensitive buyers is one example.

Should I avoid index funds because of this? This article does not recommend for or against any investment approach. The point is to understand what an index fund represents today, which differs from what the same fund represented decades ago.

How can I track index concentration? Data on the top ten holdings' share of total index value is published regularly by index providers and financial data services.

Which experts and interviews does this article reference? Wealthion interviews from June and September 2026: Mike Green, 9 September 2026 (no companion article page yet); Dror Poleg, 16 June 2026 (no companion article page yet).

If you want a professional read on how index concentration fits your own portfolio, you can request a free portfolio review from an advisor who understands real assets at https://www.wealthion.com/advisors/.

This article is educational and is not investment, tax, or legal advice. It does not recommend any security. Advisory services are provided by Greylock Peak Investments, LLC, a subsidiary of Wealthion. Wealthion is compensated for advisor introductions; see the Solicitor's Disclosure Document, ADV Part 2A and Form CRS. That arrangement does not influence editorial coverage.