From time to time, stock market indices become dominated by small groups of stocks. In 1999 and 2000, for example, TMT (technology, media and telecommunications) shares made up a big chunk of the FTSE 100, with Vodafone alone constituting nearly 14% of the index. Financial stocks were similar in 2007/2008.
If you are tracking a capitalisation-weighted index (where a company’s weighting grows with its market value), this kind of concentration should concern you. It often happens when a bubble is forming, leaving you overly exposed to the most vulnerable sectors ahead of any fall.
There’s a simple way [...]
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