When a diversified index is a handful of companies

What is going on

Large listed markets, especially the United States, have seen the biggest companies take a rising share of index weight at various points in the past decade. The mechanism is arithmetic. Winners get a bigger weight. The index does not rebalance them away. Equal-weight versions of a similar universe tell a different economic story and have different turnover.

Why it matters

An investor who wanted “the market” and an investor who wanted a concentrated growth book can end up with similar portfolios without noticing. That is not a reason to abandon index funds. It is a reason to read the top holdings. Country bias compounds it: a home index plus a global index that is itself dominated by one market is less international than it looks.

What to watch

Read the cumulative weight of the largest ten holdings and the sector mix once a year, not the level of the index. If a fund’s benchmark changes, read the change. Do not assume yesterday’s diversification math still applies.

Risks

Concentration can reverse through prices, through regulation, or through earnings disappointment in the large names. It can also persist longer than a sceptical note expects. This page takes no view on which.