S&P 500 concentration risk: is your portfolio really diversified?
- Robin Powell
- 2 minutes ago
- 2 min read
Is your portfolio as diversified as you think?
If you own a global tracker fund, you probably feel well diversified. You own thousands of companies across dozens of countries. What could go wrong?
Here's the problem. Thanks to cap-weighting, global equity funds now have around 70% in US stocks. And within that, the top ten holdings (mostly the same familiar tech names) account for roughly 20% of the entire portfolio. That's a lot of eggs in a small number of very expensive baskets. It's what analysts call S&P 500 concentration risk, and it's now at levels not seen in more than 60 years.
I'm not suggesting you sell. This isn't a market timing call. US large-cap growth stocks might continue to dominate for years. Nobody knows.
But concentration is a risk, and it's one that many investors are taking without realising it. If you're comfortable with that bet, fine. But you should at least know you're making it.
The good news is there are simple, evidence-based ways to reduce concentration risk without abandoning the principles of low-cost, long-term investing. Factor tilts to value, smaller companies, and profitability can help. Not because they're guaranteed to outperform in the short term, but because they offer genuine diversification and, according to decades of academic research, higher expected returns over the long run.
I've written about this in more detail for Global Systematic Investors. If you're wondering whether your portfolio is more concentrated than you'd like, it's worth a read.
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