It has never been easier to invest globally. A single tracker fund mirroring the MSCI World or MSCI ACWI index gives an investor access to thousands of companies across dozens of countries, all for a fraction of a per cent in annual charges.
It is no surprise that flows into these products have surged. Yet the simplicity of the market-capitalisation-weighted approach conceals a risk that too few investors interrogate: concentration.
At the time of writing, the 10 largest constituents of the MSCI World index account for roughly a fifth of the entire index. All 10 are US-listed, and the majority are linked to a single theme – the artificial intelligence supply chain.
A portfolio tracking that index is, in practice, a sizeable bet on a narrow set of companies in one country, driven by one narrative. That is not what most advisers or their clients would consider genuine diversification.
The hidden cost of cap-weighted simplicity
Market capitalisation weighting is inherently backward-looking. It awards the largest allocations to companies that have already appreciated the most.
We saw this pattern accelerate through 2023 and 2024 as the ‘Magnificent Seven’ US technology stocks dominated global equity returns.
Yet the tables turned markedly in late 2025 and into 2026. The MSCI World Value index has materially outperformed its growth counterpart since November 2025, while the MSCI World ex-US index has delivered notably stronger returns than the broader MSCI World over recent months.
For investors concentrated in a single cap-weighted global tracker, or with an asset allocation that is heavily tied to the global index, this rotation has been a painful reminder that yesterday’s winners do not always lead tomorrow.
Building a more deliberate allocation
A deliberately diversified equity allocation looks quite different from a cap-weighted benchmark. It involves making active decisions on regional weightings, ensuring meaningful exposure to the UK, Europe, Japan and emerging markets, rather than defaulting to a US allocation north of 70%.
It means considering sector composition – recognising that adding US healthcare, energy or utilities, as we have done for 2026, provides exposure to structural themes and attractive valuations without reliance on a single AI-driven narrative.
And it means incorporating tools such as equal-weighted indices alongside market-cap trackers, diluting the dominance of the very largest names.
At AJ Bell, this philosophy underpins how we construct portfolios across our funds and managed portfolio service. Our US equity weighting sits well below that of the MSCI World and we supplement broad market exposure with targeted sector allocations driven by valuation.
These are not bets against the US or against technology – they are a recognition that robust portfolios should not be overly dependent on any single outcome.
Diversification is not just a concept – it is a discipline
The events of recent months – from geopolitical escalation in the Middle East to shifting trade policy from the US administration – underscore that markets can rotate quickly and unpredictably.
A portfolio built for a single scenario is fragile. A portfolio built across regions, sectors and styles is resilient.
For advisers reviewing client portfolios, the question is not whether a global tracker ‘works’ – it clearly does, over the long term. The question is whether it provides the breadth of exposure that a client actually needs, or whether it leaves them unknowingly concentrated in a handful of names and a single market.
True diversification requires deliberate construction, and in an environment where concentration risks are rising, it has rarely been more important to get it right.
James Flintoft is head of investment solutions at AJ Bell. The views expressed above should not be taken as investment advice.