This article by Monevator contributor Longshore Drift explains how he is recovering from a passive concentration problem.
Passive investing using world trackers has served me pretty well. It quietly told me to set aside both my enthusiasms and fears, find the cheapest fund, and let the world get on with it.
“Don’t try to beat the market – buy the market,” they said.
So I did. I put a blind man at the tiller (well, the MSCI World Index) and I have largely sat back and watched.
And through a combination of favourable sequence of returns [1] and some lockdown-enhanced saving, the last few years of very passive investing has put the foundations in, if not for FIRE, then for a living when the work dries up.
Perhaps this explains why I was slow to realise that the good ship ‘Half Decent Retirement’ had shifted from being fuelled by a well-diversified basket of equities across the markets of the developed world, to what has begun to resemble a tech-driven, US momentum fund.
Tech eats World
Just nine companies account for around 28% of the value of my current MSCI World Tracker (SWLD):
- Nvidia
- Apple
- Microsoft
- Amazon,
- Alphabet (in two share classes)
- Broadcom
- Meta
- Tesla
- Micron
That is pretty much the same percentage as all the non-US equities in the developed world that are in the same index!
What’s more, as I write SpaceX is joining the indices [2], triggering an automatic allocation of billions to a host of funds, adding to the US tech concentration.
Yet jump back only a decade and you’d still find energy, finance, telecoms, and industrials in the top ten. How quaint…
Around 18% of the fund is just in the ‘Magnificent 7’. And roughly 72% of the allocation is US.
For sure the US remains a phenomenal capital growth engine. But from AI froth through to, let’s just say, declining governance standards, it is beginning to seem a little fragile.
Don’t bet against American exceptionalism, people say. Fine. But I’d rather not bet 70% and more on it, in its current state.
What are my chances, MU/TH/UR [3]?
We can then add to this, that companies representing some 30% [4] of the index are broadly betting on AI.
I don’t pretend to understand the very complex, true, long-term impact of AI on the economy or the individual constituents of the MSCI World Index.
But it seems unlikely to me that in an age of AI that the current winners can guarantee their position in the face of something faster, better – or just cheaper – from a competitor.
The ability to generate profits selling AI will likely continue to be challenged by other AI models as yet emerging.
Disruption is rarely neat or contained.
Weights and measures
This kind of concentration from a World Tracker was not what I had signed up for.
Put it all together and it’s almost enough to make you want to give up the game and run for the comforting polyester blanket of an annuity.
So, seeing myself overweight in both tech and American exposure, I found myself complaining about a tracker doing what it is essentially supposed to do.
“Market Cap Weight’s gonna Market Cap Weight”, right?
But I’ve realised I don’t actually want to own the market as it exists today.
Is then an Equal-Weight global market tracker the answer? All things, but in moderation?
Equal weight is the indexing methodology that loves all its children equally, regardless of how they behave. A diverse mix of companies and no tall poppies. The quantised blind stock picker.
So yes, equal weight does sound like the antidote to my problem. It knocks back the US dependency to around 50% and dramatically reduces the technology concentration.
But, well, it just seems boring.
Equal weight feels like you are leaving money on the table as your team of ever-vigilant fund managers work quietly and diligently, day and night, to carefully rotate your funds away from the most highly-valued businesses as fast as they can.
More inertia investment than momentum.
For me, the answer has neither been to embrace the enforced mediocrity of equal-weight indexes, nor to throw off index investing altogether in favour of stock picking based on my own hunches.
Instead I have sought out other indexes that tilt in another direction – the relative stability of high dividend-yielding companies.
I can’t tech it anymore
The VanEck Morningstar Developed Markets Dividend Leaders ETF (Ticker: TDGB) is now a major holding of mine. It has a tech allocation of less than 1% and is around 75% non-US.
Let’s briefly compare the MSCI World to my dividend-tilted escape plan, using the MSCI World ETF (ticker: SWLD) and TDGB as proxies for the two indices.
In terms of number of holdings, TDGB presents a massive concentration of risk when compared with a MSCI World Tracker. It cuts the number of individual companies down from 1,294 to just 101.
And given that TDGB holds a fraction of the number of businesses that a World Tracker does, it is not surprising that the top ten holdings account for a chunky 36% of its value.
However that top rank of dividend payers comprise a varied mix of energy, pharma, consumer goods, communications, and financials. Exactly the kind of companies that have fallen out of the top ranks of the MSCI World Index.
In terms of total number of investments, the risk is concentrated, but in terms of sectors, geographies and froth exposure, it is more appealing to me.
Return post
It’s perhaps a surprise to see that return from the Dividend Leaders ETF has roughly matched that of the World tracker since late 2019 (the furthest back this data source will chart the two ETFs):
[5]
Source: Fiscal AI
Although zooming in on the past year’s returns…:
[6]
Source: Fiscal AI
…you can see that TDGB has enjoyed quite a growth spurt in 2026.
My reasons for switching assets to this fund were, however, all about my concerns about having so much exposure to this US market [7], not chasing returns.
Divvied up differently
My overall portfolio now has sub-30% in the US. I still hold a MSCI World Tracker ETF, but from being my largest investment, dominating my retirement plans, it now represents just 15% of my holdings.
This is very much a personal choice. It’s a response to an increasing sense of discomfort around the composition of world tracker funds.
The original appeal of a cap-weight developed world tracker was growth, with the risk shared across many sectors, markets, and companies.
No wonder the dominance of a single sector made me look again.
I may be wrong. US technology could continue to dominate for another decade. But I’m happier owning a portfolio whose risks I understand and can live with than one that leaves me increasingly uncomfortable.