Risk & returns
Concentration risk is dependence on a small number of holdings, factors, sectors, regions or counterparties. It can be hidden even when a portfolio contains many lines.
Make it click
Several baskets appear separate, but all rest on one weak shelf. A shelf failure damages everything at once, so basket count overstates protection.
Now put that into markets
Funds can overlap in the same large companies, currencies or economic drivers. Weight and common exposure reveal concentration better than names.
Measures include largest weights, sector shares and factor sensitivities. Scenario analysis can expose common shocks that simple labels miss.
Look through pooled products and include employer shares, property and income dependencies where relevant. Test both direct and indirect exposures.
Diversifying concentration can reduce a strong winner's contribution as well as loss. The goal is deliberate risk, not the maximum possible number of holdings.
Takeaway
