In a note to investors, SSGA's head of quantitative equity in the Asia-Pacific region, Olivia Engel, pointed to the "peculiar concentration risks" associated with Australian equity indices, noting that the 20 market leaders make up the bulk of the overall index.
"The constituents of the S&P/ASX 20 Index make up almost 60 per cent of the market capitalisation of the broader S&P/ASX 300 Index," Ms Engel said.
The heavy concentration of the top 20 stocks in the index has likely been "acutely felt" by equity investors, she said.
The ASX 20 over the calendar year to date has underperformed the rest of the market by 4 per cent, and by 2.3 per cent over the last three years, Ms Engel said.
But the underperformance of the ASX 20 stocks could be creating good opportunities.
"Before we give up all hope and limit ourselves to an ex-20 world, there are other considerations," she said.
Ms Engel noted that valuations of these stocks have become more attractive than the ASX 300, with forward price/earnings ratios lower than the rest of the market.
The data in the note showed that when returns were mapped against volatility, the ASX 20 was not only more stable, but offered higher average expected returns.
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