Navigating the Concentration Conundrum

This paper examines the record high concentration in global equity indices driven by AI hyperscalers and proposes a Core-Satellite investment framework to mitigate tracking error.

Key Takeaways

• 1.Equity index concentration is at historic highs, with the 'Magnificent 7' accounting for 21.8% of the MSCI ACWI as of end-2025.
• 2.AI is viewed as a long-term earnings driver rather than a bubble, likely to transform sectors beyond IT, including Healthcare and Industrials.
• 3.A Core-Satellite approach combining systematic and fundamental strategies can effectively control tracking error while maintaining active alpha potential.

Table of Contents

• Introduction
• Background: The rise of equity index concentration
• An enduring trend
• Managing concentrated equity markets using diversification
• Our Global Equity Select Strategy (GES): Description and review
• Constructing a Core-Satellite approach with control over TE
• Another approach: An equal-weighted portfolio of comparable concentrated equity strategies
• In closing

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