Hyper-concentration on market cap-weighted indices: challenging active portfolio managers

Published on October, 30th 2020Market and research
Winter in... Coming?


Financial Engineer

[Invest. Pro.] Intended for Professional Clients in accordance with MIFID.

Written by Alexis Flageollet, Financial Engineer, and Juan Sebastian Caicedo, Portfolio Manager at Seeyond, on October, 12th 2020


In this paper, we will demonstrate that the level of concentration on the MSCI USA index reduces the possibility of generating outperformance, causing a scarcity of diversification and stock-picking possibilities. MSCI USA Mega caps have largely been favored in 2020 - more so than in 1999, at the peak of the dotcom bubble (according to our metrics). We herein focus on the US equity market for three main reasons: (i) the severity of the concentration phenomenon there, (ii) the weight of the US inside the global market, and (iii) to remain concise (this phenomenon of concentration is also present across Asian markets).


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