The Market Concentration You Didn't Choose

A global equity fund is apparently the most diversified instrument most investors will ever own: 1,282 companies across 23 developed markets, bought with a single ticker. If your fund tracks the MSCI World Index, it’s also, as of the end of July, 72% American, with 29% in technology, and more than a quarter concentrated in its 10 largest holdings¹. Every one of those descriptions is accurate.

That index is usually the 60 in a typical 60/40 investment portfolio — or the 40 in a 40/60. It’s the reference point against which every other allocation decision gets judged. Which makes it worth asking what the reference point now contains, because the contents have changed while the diversification label has not.

Start with geography. The MSCI World Index has never been a neutral map of the world; it’s a snapshot of which market has compounded fastest. In 1988, the Americas were 32% of the index and Asia-Pacific 47%, dominated by Japan at the peak of its asset-price bubble. Today the Americas are three-quarters and Asia-Pacific 8%. Japan alone has fallen from the largest weight in the index to under 6%¹.

The “Global” Index Has Never Been Geographically Neutral

MSCI World regional weights (selected years)

Exhibit A. Regional weights within the MSCI World Index, 1988–2025. Source: MSCI.

Now look one level deeper, into the market that dominates it. The S&P 500 is the default reference point for US equities, and the index most global funds are effectively tracking through their US weighting. At the end of 2025, the 10 largest companies in the US S&P 500 Index accounted for 40.7% of that index. From 1990 to 2015, that same figure sat in a narrow band of between roughly 18% and 23%. It has more than doubled in the last decade².

Top-10 Concentration Has More Than Doubled Since 2015

S&P 500: cumulative weight of 10 largest companies, year-end

Exhibit B. Cumulative year-end weighting of the ten largest S&P 500 companies, 1988–2025. Source: RBC Wealth Management; FactSet.

While there are obvious parallels with Japan in the 1980s, we’re not making a prediction. The MSCI World is a capitalization-weighted index and weighting mechanically follows price: the largest weights accrue to whatever stock has grown most in market value, whether that growth reflects earnings or expanding valuation multiples. The point is not that US equities will now underperform. Rather, it’s that a European investor holding a global equity tracker now owns a concentrated US tech investment — whether they chose to or not.

Unprecedented Concentration of Ownership

The theme of unprecedented risk extends to who owns the index. The US Federal Reserve's Distributional Financial Accounts show the wealthiest 10% of US households hold 87% of corporate equities and mutual fund shares. The top 1% hold half. The bottom 50% hold roughly 1%³. That’s not a new development — the share has been near these levels since before the financial crisis.

What’s new and worrying is how much of US households’ balance sheets now sit in equities. For the sector as a whole, equities reached 46.7% of financial assets in the fourth quarter of 2025, the highest reading in a series that begins in 1945. For comparison, at the peak of the dot-com bubble in 2000 the figure was 38.7%⁴.

Household Equity Exposure Has Never Been Higher

Equities as a percentage of US household financial assets

Exhibit C. Directly and indirectly held corporate equities as a percentage of household financial assets, 1945–2026. Source: Federal Reserve, Financial Accounts of the United States (Z.1), series BOGZ1FL153064486Q.

This concentration could impact US consumer spending, although not to a huge degree. Moody's Analytics estimates that Americans in the top 20% of the income distribution — those earning above $175,000 — now account for close to 60% of personal outlays. In the run-up to the dot-com peak, the same group accounted for 50%⁵. While this estimate is modelled rather than measured, and its authors note it may overstate the case, the direction of travel is not in dispute.

Even so, the risk of a negative feedback loop where a fall in equities hits household spending leading to a further drop in equity prices is weaker than it looks. Federal Reserve research puts the propensity to consume out of equity wealth at barely above one cent per dollar, and lower still for the highest earners: concentration has made aggregate demand less responsive to asset prices, not more⁶.

The Channel That Matters Is Fiscal

What matters far more is the possible impact of an equity market correction on US capital gains receipts. Capital gains realizations are the most volatile major federal revenue line: they reached a record 8.74% of GDP in 2021, but the 2022 equity market decline showed their instability — receipts fell from $336bn in fiscal 2022 to $202bn in fiscal 2024, down $134bn, or 40%, within two years⁷.

Capital gains are projected to supply 11.6% of individual income tax receipts in 2026, a share exceeded only three times since 1996, and the budget has already booked it — though the Congressional Budget Office’s own baseline assumes reversion toward 3.9% of GDP by the mid-2030s⁷. So a US equity market drawdown does not simply mark down investment portfolios. It shrinks revenue the US government is relying on, tightening the fiscal constraint described in the first article in this series. The revenue base has inherited the index's concentration: federal receipts now lean on realised gains from a small group of households holding a small group of stocks — the same handful that dominate the index you own.

Rebuilding The Reference Point

If you had spread the equity core of your portfolio more evenly in recent years, you would have paid an opportunity cost. Had you held an equal-weighted S&P 500 instead of the standard market capitalization-weighted version, you would have lagged badly over the past decade, returning 11.7% a year against 14.8% in the ten years to December 2025⁸.

But that lag is not always the case, and it is not independent evidence against equal weighting. It is the same concentration described above, seen from the other side: when the largest names outrun the rest, capitalization-weighting wins by construction. Over the 36 years to the end of 2025 the ranking reverses on return, if narrowly: you would have generated 11.1% a year for equal weighting against 10.8%. More spectacularly, in the decade after the dot-com peak the pattern reversed with force — over the eleven years from the end of 1999 to the end of 2010, market capitalization-weighting returned 0.4% a year while equal-weighting compounded at 6.6%⁸.

One reading matters for timing. Over the three calendar years 2023 to 2025, market capitalization-weighting outperformed by 29.8% — the widest three-year gap in the available data. Equal-weighting has been ahead so far in 2026, returning 13.3% against 10.1% to the end of July⁸. Household equity allocation peaked in the same quarter⁴. The extreme this article describes is a level, not a trend still running.

Past performance is not a reliable indicator of future results.

None of this argues for abandoning the equity core; it remains the anchor against which the rest of the portfolio is judged. The point is to choose it deliberately rather than drift into a concentrated position in US technology. How far to go depends on how comfortable you are owning something that behaves differently from the headline index — including in the years when the index is winning. You may prefer to hold the same companies in more even proportions, or to tilt toward dividends and change what you own rather than how much of each.

In our next article we’ll describe how you can match this with a satellite addition in your investment portfolio designed to do the work your core cannot.