The iShares Top 20 U.S. Stocks ETF (TOPT) is designed to capture market performance by isolating the largest enterprise leaders in the U.S. market. That covers nearly half the S&P 500 Index’s ($SPX) total market capitalization. But chances are you probably haven’t heard of this ETF.
Despite being part of the huge iShares lineup, TOPT, which debuted less than two years ago, is puny in size compared to the more established SPDR S&P 500 Trust ETF (SPY) and the Invesco QQQ ETF (QQQ). And while it has underperformed that pair over the past 12 months, TOPT is perhaps the best way an investor could bet on mega-cap stocks. Instead of spreading capital across hundreds of companies, TOPT strips out the mid-caps and smaller S&P 500 constituents to build a highly concentrated portfolio.
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www.barchart.com At 34x trailing 12-month earnings, TOPT’s portfolio isn’t cheap. That makes sense, since low valuation has not been a feature of mega-cap stock investing for a while.
www.barchart.com How focused is TOPT? Here are all 20 stock holdings. It resets to the top 20 by S&P 500 weight at each quarterly index reconstitution period. Notable to me is that even among the biggest of the big in U.S. stocks, the top four companies (five tickers since Alphabet (GOOG) (GOOGL) has two) comprise 50% of TOPT’s total portfolio.
www.barchart.com This ETF’s sector allocation is also focused. Technology is naturally the biggest, with Communication Services and Consumer Discretionary adding up to roughly three-quarters of total portfolio weight.
Why Has TOPT Done So Well?
In a market regime dominated by the AI trade, historic spending on computing power, cloud expansion, and corporate buybacks, mega-cap balance sheets have outperformed smaller equity tiers. TOPT cuts out the bottom 480 stocks in the S&P 500, concentrating capital entirely in companies with high cash reserves and pricing power.
Broad S&P 500 funds (like SPY) or total market funds carry lagging sectors and debt-heavy firms that act as performance drag during momentum-driven rallies. TOPT, at its core, is really an unhedged bet on corporate scale in the AI era. And while this chart looks neutral to toppy in my view, one has to be careful betting against these AI titans.
www.barchart.com The top 20 market-cap leaders hold unrivaled balance sheets, allowing them to fund multibillion-dollar R&D initiatives (such as AI data center infrastructure) out of operating cash flow without relying on high-cost debt financing. And, as broad market index funds receive automatic retirement contributions (a trend known as “the passive flow”), market-cap weighting mechanically directs the largest share of new inflows into the top 20 holdings, reinforcing their price floors.
What Are TOPT’s Biggest Risks?
That top-heavy concentration is a double-edged sword. Because the top two holdings – Nvidia (NVDA) and Apple (AAPL) – account for over 30% of the entire fund, a company-specific earnings miss or operational execution failure in either stock will severely drag down the entire ETF. And that high price-earnings multiple means that TOPT leaves little room for earnings disappointments.
There’s also the issue of the “broadening trade” which has been rumored for several quarters, but has not truly followed through. If market participation broadens, meaning equal-weighted S&P 500 index strategies, mid-caps, or small-caps take leadership, TOPT will lag broad market benchmarks. That’s what occurs when institutional liquidity rotates out of mega-cap technology and into beaten-down cyclical sectors.
I’ll say this as someone who tracks markets closely every day, and has for 40 years: This is the most powerful set of stocks I’ve ever seen. And by all rights, they should collapse at some point. But given the nature of market makeup and how trading functions (I’m talking to you, algorithms!), this TOPT basket cannot be counted out, until it is on the mat, and not getting up. And since these 20 names essentially ARE the stock market now, monitoring them closely, as a unit through this ETF and individually, is an essential part of being a conscious modern equity investor or trader.
Rob Isbitts is a semi-retired CIO, former fiduciary investment advisor, and Barchart columnist. Check out his other work at ETFYourself.com (featuring the Fresh Charts weekly trading post), and ROAR.PiTrade.com, helping investors to better-manage their own portfolios.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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