Rik Albrecht: Why concentration is not an investment mistake
This column was originally written in Dutch. This is an English translation.
The dominance of US big tech in the MSCI World Index triggers one instinct: to avoid it. That is understandable, but those who try to avoid concentration often end up taking the greatest investment risk.
By Rik Albrecht, CFA, director and chair of the investment committee at various pension funds and investment manager at Roccade.
Concentration risk is the talk of the town at pension fund boardrooms. This is hardly surprising. Around 70% of the MSCI World Index now consists of US shares, and roughly a quarter of these are the ‘Magnificent 7’.
The regulator is also monitoring this development. In an analysis from December 2025, DNB economist Loes van der Jagt points out that, due to this concentration, financial institutions may be vulnerable to price corrections should high profit expectations surrounding technology companies fail to materialise.
This debate does not stem purely from technical investment concerns. It is also fuelled by the broader societal debate on geopolitical dependence on the United States. Some investors believe they should not invest in US big tech, but rather in European defence, housing and the energy transition. But these are issues for politicians, not for investors.
Anyone looking at the market and investment theory sees a more nuanced picture. Jitzes Noorman and Alexander van Aken of Columbia Threadneedle Investments point out that the so-called implied correlation index is relatively low. This suggests that the market still sees a considerable degree of diversification. Moreover, diversification across sectors is often more important than across countries.
The fact that a sector becomes dominant is nothing new. The book Financial Market History by the CFA Institute Research Foundation states that in 1900, no less than 63% of the US stock market consisted of railway companies. Later, telegraphy and telecoms were the technological giants of their time. Companies such as IBM and General Motors also previously enjoyed a dominance comparable to that of today’s big tech.
Sectors come and go, but that does not automatically mean that investors suffer losses. Usually, another sector simply grows faster. Markets naturally realign themselves towards new growth sectors. That is precisely the mechanism on which market capitalisation-weighted indices such as the MSCI World are based.
Historically, attempts to actively avoid concentration have often proved riskier than the problem itself. Research by Hendrik Bessembinder of Arizona State University shows that returns are structurally concentrated: less than 3% of shares account for the lion’s share of long-term capital growth. Anyone trying to avoid concentration therefore runs the risk of missing out on precisely those shares that determine returns.
Investors who, around 1900, regarded railway companies as ‘too dominant’ and reduced their exposure subsequently missed out on decades of returns. Dominant sectors often remain dominant for longer than expected.
A broad market index therefore has an important feature: it requires no predictions about when a sector will lose its lustre. When companies lose ground, their weighting falls automatically and new winners take their place.
That does not mean risk disappears. Stock markets are always subject to volatility and sometimes sharp corrections. But those who actively try to avoid concentration often introduce new risks by deviating from what the market has priced in.
Prudence lies primarily in diversification across asset classes, a consistent policy that matches one’s risk appetite, and avoiding fads.
It is not for nothing that investors say: ‘It is expensive to have an opinion.’ Anyone who tries to avoid concentration implicitly distances themselves from the small group of shares that historically determine returns. If a pension fund has an opinion, it is ultimately the member who pays.
Read the full article in Financial Investigator magazine