For all the sound and fury of political events this year, one theme emerging is that the concentration risk in equities seen a year ago appears to have declined – if not vanished. An asset allocation shift to Europe, improved performance in Asian equities, and the questions raised by US tariffs have had an effect.

Remember when stocks were slammed by China’s AI app, DeepSeek, and the 2 April “Liberation Day”-inspired stock selloff? Well, as we know, stocks have rebounded, but one perhaps more enduring result of this was how people reappraised the role of the “Magnificent Seven” Big Techs in driving returns.

It is easy to see why investors have taken a hard look at drivers of return. At the end of 2024, the market capitalisation of the “Mag Seven” (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla) accounted for more than a third of the S&P 500 Index of stocks. Somewhat late in the day, perhaps, wealth managers started talking about concentration risk.

It is worth reflecting that concentrations of this severity tend not to endure indefinitely in the same sectors. And that’s even without dislocations caused by tariffs and anti-trust actions. It is arguable that the sheer weight and power of a big firm can be an Achille’s Heel eventually: unless such a business is superbly run and led, there’s a sluggishness, or perhaps complacency, that large firms tend to acquire over time, creating openings for upstart competitors. (Big Business also tends to be more easily targeted by politicians seeking votes and money, although large firms can also more easily fund lobbyists to fend them off.) 

In almost all cases, competition and technology tend to be better at instilling humility than governments seeking to “do something” about a large firm. Kodak once bestrode the world of photography – now it is history. IBM - “Big Blue” - had to reinvent itself totally to remain relevant and is no longer a computer manufacturer. The list is long.

The process is almost Darwinian. As Investopedia explains, the Dow Jones Industrial Average, created in 1896 by Charles Dow, originally consisted of 12 companies: American Cotton Oil, American Sugar, American Tobacco, Chicago Gas, Distilling & Cattle Feeding, General Electric, Laclede Gas, National Lead, North American, Tennessee Coal and Iron, US Leather, and US Rubber. (Notice that these were mostly commodity companies.)

Of these 12, only General Electric has remained in business – although divided into different companies; it was finally removed from the DJIA in 2018. A similar process, wrought by what Austrian economist Joseph Schumpeter called the “creative destruction” of capitalism, has led to similar changes in European bourses, and elsewhere.

It is not just individual markets where concentrations wax and wane. For example, in a note this week from Kate Marshall, lead investment analyst, Hargreaves Lansdown, a UK IFA and wealth manager, said that gains in markets around the world are more widely spread out. The Mag Seven aren’t hogging all the limelight as much as they did. 

“These moves haven’t been enough to knock the tech giants off their top spot in global indices yet, but it’s a stark reminder of the need for diversification in client portfolios,” Marshall writes.

As for the US itself, it still accounted for a whopping two-thirds of the MSCI World Index of equities at the end of June but is down a touch from almost 70 per cent in January. That may not seem a lot, but it is a shift, nonetheless.

There has been a bit of a reshuffle: as US stocks fell in the first six months of 2025, other markets gained. So far this year, as Marshall notes, European equities have risen 14 per cent. Part of this is the commitment by countries such as Germany to loosen budgetary wallets and spend on defence and infrastructure amid worries that the US is scaling back NATO commitments.

The UK equity market has risen 9 per cent so far this year, helped by areas such as aerospace and defence, and banks. (For example, shares in Barclays are up more than 36 per cent; those of Lloyds Banking Group are up 43 per cent; shares in NatWest Group are up 28.3 per cent. At HSBC – in some ways more of an Asian bank today – shares are up 22.6 per cent, and Standard Chartered – also a strong “Asia” story – is up 36.2 per cent. BAE systems is up a vertiginous 58 per cent.)

Switching to Asia, China has recovered a bit of its mojo. Large tech players such as Alibaba and Tencent gained from AI momentum earlier in the year; stocks also had impetus from China loosening its monetary policy.

Hargreaves Lansdown’s Marshall said that all these changes put a premium on smart active management. They also suggest that advisors should be alert to the dangers of concentration risks and consider the tools available to them. For example, a capital-weighted index such as the S&P 500 is going to have this problem, which is why it makes sense, for example, for those concerned about concentration to also hold entities such as ETFs that track equal-weighted indices.

Diversification is a popular word in this wealth management sector, but there are always ways to think afresh on how to make it happen and avoid problems down the road.