We all know indices are concentrated right now, more than ever. Just how bad is it?
“The startling conclusion is that, despite the Russell 1000 nominally providing exposure to its namesake number of stocks, the index affords an effective diversification of only 59 stocks.“
“Not only does market-cap weighting induce substantial single-stock risk, but the diversification provided by this foundational asset class has evaporated by 70% over the past decade.“
Equal weight, as the article argues, is not the solution here, as it “suffers from significant operational costs, underperformance, questionable assumptions, and skewed risk bets.“
