Spotlight: Concentration vs Diversification


The Million Pound Drop is a British TV game show where players are given a prize of £1 million at the start of the game. For each general knowledge question, players must decide whether to gamble the £1 million prize money on one answer or spread the money across multiple answers. Players are looking to maximise the amount of money they take home at the end of the game. When investing money you have to make similar decisions on whether to spread your investments.
Diversification is another term for spreading your money into different investments and is often compared to the concept of “not putting all your eggs in one basket”. Spreading investments across various companies, sectors (e.g. healthcare), and geographies (e.g. UK) can lower the chance of losing a lot of money if one investment doesn’t do well. This concept is similar to spreading your £1 million across the different multiple-choice answers in the Million Pound Drop, so one wrong investment doesn’t cost you your fortune. On average, investors win more by diversifying than betting on a single investment, albeit there may be some investors that beat the odds and win big. 
In 1976 a man called Jack Bogle invented the first index fund, which is a fund designed to maximise diversification and make it easy to invest in lots of different companies. These days, index investing has been adopted by lots of investors globally. There is a global equity index (the MSCI World) which defines the weightings of the underlying companies based on their size (or “market capitalisation”) – a larger company (e.g. Apple) holds a higher weight in the index. Investing in this index gives exposure to all 1,480 underlying companies and their associated sectors and geographies. Recently we have seen the index become more concentrated as the biggest companies in the index have grown to become a bigger proportion of the overall index. This means by investing in the index you are placing a higher reliance on a smaller number of companies to perform well than before. The chart below shows the concentration of the index at 31 January where the top 10 companies in the index have a weight of 22%, with the remaining 1470 companies sharing the remaining 78% weight.
Source – MSCI World data as at 31 January 2024. Alphabet A and C shares have been combined as a single company.
Active management can help combat concentration risk. Active managers choose investments based on detailed analysis, in contrast to traditional index investing, which is based purely on the size of the companies in an index. Active fund managers have the opportunity to deviate from the index and therefore potentially reduce concentration risk. Ultimately, active fund managers aim to outperform the index and deliver better returns for their investors. The downside of active management is that it is often more expensive than index investing.
There are pros and cons of both active and index investing and an appropriate mix of both can form part of a diversified portfolio.


The Noise​

  • Nvidia added a record $277 billion in stock market value on Thursday, after the high-flying chipmaker’s quarterly report beat lofty expectations. It was Wall Street’s largest one-day gain in market value in history, the second time this record has been broken in 2024 already. The company’s stock soared 16.4%, fuelled by optimism about artificial intelligence as demand for its specialised chips used in AI computing continued to outpace already-high expectations. Its market capitalisation now stands at $1.96 trillion, lifting it above Amazon and Alphabet to be the world’s fourth most valuable company, behind Microsoft, Apple, and Saudi Aramco. The positivity felt around Nvidia’s blow-out results filtered through US markets, as they climbed over 2%.

  • Britain recorded its highest ever monthly budget surplus in January following record high seasonal tax inflows, per the Office for National Statistics. The £16.7 billion budget surplus is up from £7.5 billion a year earlier, though below consensus expectations of £18.7 billion. A budget surplus is typical for January, as annual income tax payments are due at the end of the month. January’s public finances delivered good news for Chancellor of the Exchequer Jeremy Hunt as he prepares his annual budget, though will be unlikely to pave the way for big pre-election tax cuts. Despite the government having lowered some taxes in November, Britain’s overall tax burden is still high by historical standards because income tax thresholds have not been adjusted in line with wage growth or inflation.

  • The UK has announced that it will leave the Energy Charter Treaty (ECT), following efforts to align the treaty with net zero having failed. Signed in 1994, the ECT was designed to promote international investment in the energy sector, but proposals to modernise the ECT to better support cleaner technologies stalled. The UK joins nine other EU member states, including Spain, France and the Netherlands in withdrawing from the treaty. Minister of State for Energy Security and Net Zero, Graham Stuart said that “remaining a member would not support the UK’s transition to cleaner, cheaper energy, and could penalise us for our world-leading efforts to deliver net zero”. A strong legal framework is already in place to ensure there is continued investment in the UK energy sector, as it remains an attractive destination for investors across all energy technologies.

The Numbers

GBP Performance to 22/02/2024

Equity GBP Total Return

1 Week








MSCI Europe






MSCI Japan



MSCI Asia Pacific ex Japan



MSCI Emerging Market






Fixed Income GBP Total Return


UK Government



Global Aggregate GBP Hedged



Global Treasury GBP Hedged



Global IG GBP Hedged



Global High Yield GBP Hedged



Currency moves












Commodities GBP return









Source: Bloomberg, data as at 22/02/2024

The Nuance

The relentless opposition from policymakers to bets of rapid interest-rate cuts continued this week. This sent bond prices down and pushed yields to new highs for 2024. As the Federal Reserve and European Central Bank continued to preach patience, markets were forced to further rein in their bets on rates easing. US traders have largely stopped trying to bet against the Federal Reserve, market implied interest rates now reflect the view that the central bank will stick to its guidance for three rate cuts this year. This is a marked change from the start of February when the market was convinced that six reductions were coming in 2024. Some investors even sought protection against the possibility that the next move by the Federal Reserve could be an interest rate hike.

The minutes from the Federal Reserve’s January 30-31 meeting were made public this week. The key takeaway from the session was that the bulk of policymakers are still concerned about the risks of cutting rates too soon. Participants also highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained to return inflation to the US central bank’s 2% target.

Reinforcing the view that economies are too resilient to warrant central bank easing is surging corporate bond issuance. Much of the unusually strong demand has been aimed at funding acquisitions, with Cisco and AbbVie looking to raise $10-15 billion each.


All investment views are presented for information only and are not a personal recommendation to buy or sell. Past performance is not a reliable indicator of future returns, investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.

Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by atomos. Any expressions of opinion are subject to change without notice.

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