Showcase: Staying true to alpha

ملخص مفصل

When AI drives the market, diversification needs a different engine.

Australian investors are fluent in the language of market concentration risk. For most of the last two decades, banking and resources stocks have each made up around a quarter of the ASX200 weighting. That top-heaviness has ebbed and flowed but never gone away, so when financial advisers and their clients set out to diversify out of local shares, they invest in global equities.

Doing that now has posed a new problem: the top 10 stocks on the S&P500 are dominated by the tech giants - and the stakes are much higher.

So for investors who want a counterweight to their passive exposure and to lower their momentum-driven risks, there's an answer: a fresh look at bottom-up stockpicking.

Matt Jones, portfolio manager of the Fidelity Research Global Equities Fund, explains the magnitude of the problem. "If you look at the S&P500 or MSCI All-Country World index, your top 10% of contributors to the last 12 months of returns have delivered over 120% of the returns, in some instances.

So you get this concentration risk in portfolios that you might not even be aware of. That means a value portfolio, a passive portfolio or growth portfolio might all have the same underlying drivers of returns, and that's a big risk."

For example, you might invest in a growth fund that becomes heavily tied to momentum or AI-driven growth, or an infrastructure fund that's also in AI. Unless you're monitoring those on a daily basis and adjusting your portfolio positioning as you go, you might get some big bets and some big risks in your fund that you weren't aware of," says Jones.

He explains that the risks are hidden specially if you're not actively looking for it.

"It's a really interesting moment in the markets right now. Traditionally, if I hold 'x' number of names, maybe between 50 and 70 names, I'm diversified. I hold them across different industries and sectors."

He continues, "But when you've got a big, huge underlying theme like AI, now you could own an energy company, a pure energy company, a…

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