The ASX 20 is an expensive hideout - buyer beware

The ASX’s largest companies have delivered a powerful run over the last 12 months, with many of the top 20 posting double-digit gains. But beneath the surface, the drivers of that performance are far more concentrated than headline returns suggest.

Over that same period, the outperformance has been clear. The ASX 20 (ASX: XTL) has returned around 11.20% over the past year, compared to 6.27% for the ASX 200 (ASX: XJO), highlighting just how much of the market’s gains have been concentrated in its largest names.

In this environment, investors have gravitated toward perceived safety, crowding into a handful of dominant names and pushing valuations well beyond historical norms.

As AllianceBernstein’s Chief Investment Officer Hamish FitzSimons describes it, “the big five” - the big four banks and Wesfarmers - are leading the charge. Price-to-earnings multiples for this cohort are now trading around 45% above their 10-year averages, a staggering premium that raises real questions about what comes next.

ASX top 20 performance (1 year, as at 20 March 2026)

That concentration has supported index performance, but it also leaves the market increasingly exposed. In this Q&A, FitzSimons breaks down what’s driving the rally, the risks investors may be underestimating, and where more compelling opportunities may lie beyond the crowded trade. 

Expensive stocks getting more expensive

The strong performance of the ASX top 20 over the past year has a straightforward explanation, according to FitzSimons.

“Simply put, it is expensive stocks getting more expensive,” he says.

By market capitalisation, five companies – the big four banks and Wesfarmers, a group FitzSimons refers to collectively as “the big 5” – account for more than half the combined market cap of the top 20. Their price-to-earnings ratios are now trading “on average 45%+ above their 10 year averages, and expanded 15% on average through the year”.

It is a valuation expansion story as much as an earnings story. Capital has clustered around large, liquid, well-understood businesses, pushing valuations higher regardless of underlying fundamentals, leaving the index looking strong on the surface but increasingly reliant on a narrow leadership group.

When priced for perfection, you must deliver it

The concentration of the rally in a handful of mega-caps creates a fragile dynamic, FitzSimons warns. When stocks are priced for perfection, even minor disappointments can trigger sharp reactions. The normalisation of P/E ratios in the big five would drag on the entire index simply because of their sheer size within it.

“Just 12 months ago National Australia Bank released a short quarterly that created the impression of perhaps a 1% earnings downgrade. The stock went down 14% in a few days and then recovered as it was realised it perhaps wasn’t a downgrade.”

This example underscores how sensitive highly valued stocks can be to even minor shifts in expectations. As FitzSimons said:

"When you are priced for perfection, you had better deliver perfection."

Any stumble – even a perceived one – can trigger a sharp re-rating. With the big five commanding such significant index weight, the consequences of a valuation reset would extend well beyond those five stocks alone.

Can the rally last?

FitzSimons is candid that sustainability is unlikely, while acknowledging the difficulty of timing.

“Probably not, but we would have said that a year ago. As the saying goes, in the short term the market is a popularity contest, in the long term it is a weighing machine. Cash flow is gravity, and you can’t defy gravity.”

Markets can remain expensive longer than logic suggests – but FitzSimons is clear that fundamentals ultimately win.

If the gap between price and fundamentals continues to widen, the risk of a correction increases. 

Opportunities beyond the crowded trade

While the top end of the market appears expensive, FitzSimons emphasises that valuation dispersion remains significant across the broader market.

“Whilst the whole market is expensive, the expensiveness in the market is pretty narrow. Outside of the big 4 banks and Wesfarmers there are another 295 stocks, and a lot of them are attractively valued.”

This suggests that opportunities may lie outside the most crowded areas of the market, particularly in companies that have been overlooked as capital has concentrated in large-cap defensives.

Top 20 picks: where value still exists

Even within the top 20 itself, FitzSimons sees selective opportunity. He identifies companies still trading at discounts to their long-term valuations, specifically naming Aristocrat Leisure (ASX: ALL) and CSL (ASX: CSL). 

On the latter, he notes that CSL "is at a large discount and operations appear to be stabilising," a combination of valuation support and operational improvement that can create compelling entry points even in an otherwise expensive market.

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