Diversification is key as the Mag 7 overshadows market
The Magnificent 7 tech stocks increasingly dictate the risk and return profile of the S&P 500, emphasizing the importance of diversification.
![Line chart shows the steadily rising contribution of the Magnificent 7 to the monthly volatility of the S&P 500 as these stocks (Microsoft, Apple, Amazon, META, Invidia, Tesla and Google) represent 32% of the Index. Investing in the S&P 500 increasingly implies a bet on their performance.](https://fsinvestments.com/wp-content/uploads/2024/06/COTW_2024-06-07_thumbnail-247px.jpg?w=250&h=150&crop=1)
Negative equity risk premium highlights investor complacency
The current negative equity risk premium suggests markets may not be sufficiently compensating investors for today’s market and economic risks.
![Line chart shows equity risk premium, a common way for analysts to decipher the level of excess return investors demand to assume equity market risk. It turned negative in 2H 2023, which may highlight a level of investor complacency as markets have rallied this year.](https://fsinvestments.com/wp-content/uploads/2024/05/COTW_2024-05-31_thumbnail-247px.jpg?w=250&h=150&crop=1)
Private credit loss rates don’t support draconian headlines
Direct lending loss rates compare favorably to much of the leveraged finance market, as this week’s chart shows.
![Column chart that shows direct lending’s historical loss rate since 2005 compares favorably to many other parts of the leveraged finance markets. The direct lending loss rate of -1.03% is roughly in line with leveraged loans (0.92%), but below that of high yield bonds (-1.49%) and commercial and industrial bank loans (-2.30%).](https://fsinvestments.com/wp-content/uploads/2024/05/COTW_2024-05-22_thumbnail-247px.jpg?w=250&h=150&crop=1)
Private credit valuations proven conservative over time
Private credit investors’ realized losses have been about half that of unrealized markdowns during the past three periods of market stress.
![Close up thumbnail of a column chart](https://fsinvestments.com/wp-content/uploads/2024/05/COTW_2024-05-17_thumbnail-247px.jpg?w=250&h=150&crop=1)
As private credit grows, underwriting standards remain healthy
Lenders requiring more equity and less leverage, suggesting healthy private credit lending standards.
![Column chart depicting 2022, 2023 and 2024 lending requirements, showing lenders required more equity in deals and less earnings leverage over the past three years. The percentage of deals requiring greater than 45% equity in deals went from 25% in 2022, 49% in 2023 and 55% in Q1 2024. Earnings leverage requirements of 6x or lower increased from 18% in 2022, 54% in 2023 to to 55% in 2024.](https://fsinvestments.com/wp-content/uploads/2024/05/COTW_2024-05-10_thumbnail-247px.jpg?w=250&h=150&crop=1)
As advisors redeploy cash, alternatives are in focus
Advisors expect to reduce their clients’ cash allocations this year. Alternatives, multi-asset and real asset investments are among the major beneficiaries.
![Column chart showing where advisors plan to redeploy cash, highlighting multi-asset, alternatives and real asset investments as key beneficiaries.](https://fsinvestments.com/wp-content/uploads/2024/05/COTW_2024-05-02_thumbnail-247px.jpg?w=250&h=150&crop=1)