From time to time, the financial media highlights the growing size of the world's largest companies and raises concerns that investors may be overly reliant on a small number of stocks. These discussions can sometimes lead to questions about the merits of market-capitalisation-weighted investing and broader market-like approaches.
Drawing on recent research, this issue explores why a concentrated stock market is not necessarily a riskier one. It also highlights how systematic, risk factor-tilted portfolios typically exhibit materially lower stock concentration than the broader market, while maintaining the diversification that remains a cornerstone of sensible long-term investing.
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