焦點對談 — 注意眼前的集中風險

This is an edited audio transcript of the Talking Heads podcast episode Concentration risk: is it worth it?

Daniel Morris: Hello and welcome to the BNP Paribas Asset Management Talking Heads podcast. Every week, Talking Heads will bring you in-depth insights and analysis on the topics that really matter to investors. In this episode, we’ll be discussing concentration and US equity indices. I’m Daniel Morris, Chief Market Strategist, and I’m joined today by Raul Leote de Carvalho, Deputy Head of Research of our Quantitative Research Group. Welcome, Raul, and thanks for joining me.

Raul Leote de Carvalho: You’re welcome. It’s a pleasure to be here and thanks for inviting me.

DM: This podcast comes at a very relevant time. Given the recent turmoil we’ve had in the markets, a lot of investors have talked about concentration in the {US} indices, particularly around the mega-cap tech stocks.

Let’s start with the level of concentration. We have this sense that it’s extremely high. Can you give us an historical perspective? How does the level of concentration today compare with what we’ve seen over the last 10 years?

RL: If we look at the level of concentration of the US stock market over the last 100 years, we realise the 10 largest market capitalisation stocks have about 28% of [the] market cap in the index. That’s as high as it ever got in the last 100 years. Now, what we’ve seen immediately after that period of the nifty 50s, when we were at similar levels of concentration, is that it came down until the mid-nineties. Then it rose again during the dot com bubble. And then it came down until 2016. We now started seeing this dramatic increase in concentration to the levels of where we are today. Really remarkable.

DM: Alongside that concentration, the other worry that investors have is the valuations of these stocks. If you have high valuations in a concentrated market, clearly that presents some risk. Again, looking at history, how do things today look versus, say, 2000?

RL: We’re not in the same type of situation as back in 2000. If you look at the largest market capitalisation stocks, the 10 largest in the S&P 500, we had price/earnings of about 60 in the dot com bubble compared with the rest of the universe at 30.

If you look at it today, what you find is that the top-10 companies in the S&P 500 actually have a similar valuation as the rest of the universe, just marginally higher. Price/earnings today is at 30 compared to 27, 28 for the rest of the universe. They’re not really much more expensive than the rest of the universe.

Now, this is really remarkable. What we have seen is that the net income of these very large market capitalisation companies has managed to keep up with the performance in terms of price. Both have risen in tandem.

DM: That highlights that the recent market turmoil isn’t necessarily a function of too high valuations. When we think about concentration, it really is the opposite of what we’re taught in school, that when you think of a portfolio, it should all be about diversification. There are quite good reasons for that. Maybe you can talk a bit about the risks of this concentration that we see in the market today.

RL: Now you are in a situation where you hold a portfolio that has these very large companies dominating our allocation. Is this a good thing? If these companies continue to grow at this pace, of course, it’s a good thing, but can they grow at this pace? That’s really the question you now really need to ask.

There’s two problems you may face now. The first is that your portfolio now is highly sensitive to anything that can happen to these companies because they have a very large weight. We’ve seen it with the news on DeepSeek. Anything that can really raise questions about the future profitability of these very large market capitalisation companies is likely to create a lot of volatility in your portfolio.

So, you would be better off buying an active fund and delegating the timing of getting out of these companies to the active fund managers, and expecting that they reduce the weight in these very large companies at a good time, or at least diversifying your allocation.

For example, you can invest part of your portfolio in an equally weighted ETF. That will decrease your exposure to very large stocks and it will increase your exposure to some of the smaller companies in the S&P 500. These are two possibilities that you should consider in your investments if you don’t want to be super exposed to these very large companies.

DM: Like I said, Raul, a very timely discussion for us to be having. We’ve seen before us what are the consequences of investing in highly concentrated portfolios. You pointed out that the levels are comparable to peak periods of concentration that we’ve seen historically. Valuations not as high as they were, say, during the tech bubble in the late nineties and early 2000s. In terms of the risks of that high concentration is high volatility, which we’ve seen recently. One of your suggested solutions to avoiding this concentration is looking at equally weighted ETFs.

Well, Raul, thank you very much for joining me.

RL: It’s been a great pleasure.

DM: That’s it for this week’s episode of Talking Heads. If you would like more information, please reach out to your BNP Paribas Asset Management contact, or check out Viewpoint, our website for investment insights at viewpoint.bnpparibas am.com. We will be publishing a more in-depth treatment of the subject on our website. So please do check back for that. And in general, Viewpoint brings you commentary and analysis and a variety of formats from investment outlooks to asset allocation videos and podcasts to help you make better informed decisions. You’ve been listening to the BNP Paribas Asset Management Talking Heads podcast with me, Daniel Morris, and Raul Leote de Carvalho, Deputy Head of Research at our Quantitative Research Group. Please do join me next week. Until then, take care.