Do you have data to back that up?
What might help understand this concept intuitively is if you take it to the extreme: what if you always held only the very first company of the SP500. Sure, you would have a lot of the upside, but you would also be completely naked to the downturns. Similarly, you would lose a lot of money on commissions whenever the leader changes. Taking any other smaller subsection has the same problems, it's simply a matter of what tradeoff works best for you.
These are the 10 year returns I’m seeing according to S&P:
S&P 500: 11.1%
S&P 500 Top 50: 13.2%
S&P 500 Top 10: 18.1%
The trend is pretty clear, at least in the last decade. My other point was that the historical data may not be as relevant because the index is much more top-heavy today, perhaps in part due to the popularity of index funds and part because the top companies are actually outperforming.
Here’s an article to that effect - the top 20 stocks in the S&P accounted for ~90% of the index’s gains last year: https://www.visualcapitalist.com/cp/top-20-stocks-sp-500-ret...
To your question about picking the extreme Top 1 stock - again I’m having trouble finding good data on that, but I’d be curious what the hypothetical outcome would have been over the last 20 years.
Firstly, for a considerable majority of history, often for years at a time, holding the top one company, I'll just call it SP1, underperforms the index. The maximum downturn for the SP1 was 79% and I think very few people could stomach holding that for years at a time, hoping things will improve.
Secondly, pretty much the only reason the SP1 strategy comes out on top is the fact that AAPL has gone up about ten times (!!) in the last decade or so. Whether that's the new norm in the markets or an absolute anomaly I'll leave up to you. In short, the only real reason the SP1 strategy has looked favorable, and I suspect the same holds for the SP10 and SP50 if you backtested them, is that Apple has seen its value skyrocket.
Needless to say that none of this is investment advice etc.
[0] https://www.portfoliovisualizer.com/backtest-dynamic-allocat...