Today, the US market is more concentrated than it has been for decades. This is because a small group of companies – primarily all technology related – have driven the majority of market gains in recent years. These
firms have been  benefiting from high product demand, especially with the  advent of AI, and exceptional profit
growth. This has led to an increasing dominance of the top 10 very largest stocks, which now account for a
massive share of both the US market and global equity indices.
For some context, an investor today who buys a global index passive fund will invest two-thirds of their cash
into US listed businesses. Within this c.65%, one-third will be technology stocks and c.25% will be invested in
only 10 stocks. Within the US itself these stocks account for nearly 40% of the market, as the below chart helps illustrate; this concentration is at all-time highs. To put it in perspective, that investor buying that global index passive fund would have more in each of Apple, Nvidia, and Microsoft than they would of the whole UK
market; i.e. these companies on their own are worth more than the entire UK stock market!

Whilst this has been rewarding for investors in recent years, such high levels of concentration clearly represent a significant risk. Such exposure to a single market (the US) and currency (the US dollar), makes a very large
assumption that it is going to be the best performing market in the years to come. Although this could
happen, common sense (and basic portfolio theory) would suggest that it is prudent to ensure proper
diversification, given that none of us know what will happen in the future. At the same time, the US market’s
strong run has meant it has become a very expensive one to own, on any financial valuation measure, making it less attractive for long-term investors. This can be seen below, where the ‘P/E (share price divided by profits)
is the proxy for valuation. When the US market has historically been at current ‘valuation levels’, there is not a clear relationship showing the likely return over the next year, the left-hand chart. However, in the right-hand chart you can see that when the market has been as expensive as it is now, then returns over the next ten years have been much reduced. Finally on this point – rich valuation have made these stocks, and by proxy the market, more susceptible to sharp sell offs – as investors maintain an ‘only the very best will do’ attitude.

Within this, we would further suggest that relying too heavily on just a few companies for returns is also an
unnecessary risk. History tells us that regardless how unassailable a company’s position appears to be, whilst
this has been rewarding for investors in recent years, such high levels of concentration also represent a significant risk. As cycles and trends come and go, leadership will shift over time. Even though this cycle may seem unique, past trends suggest that dominant companies do not remain on top indefinitely – as the below table shows.

A further point to this is that profit growth also tends to normalise over time. The Magnificent 7 have delivered extremely strong earnings in recent years, hence their share prices have risen to such lofty levels, however cracks have begun to show and profit growth is no longer of the same magnitude. Meanwhile, profit growth of companies outside the largest US stocks are starting to catch up. Moreover, when a handful of businesses
generate outsized profits, they inevitably attract competition. The rise of AI challengers, such as China’s
DeepSeek, which operates a much cheaper and simple model than the incumbents, illustrates how new entrants can disrupt even the most entrenched players. Furthermore, history shows that markets constructed on a more equal footing (equally weighted indices have the same percentage to every stock, regardless of value) have gone on to perform better when markets have been as concentrated as they are now, as the chart
below shows.