What concentration risk is
If a large share of your money sits in a few companies, a poor year for those companies has a large effect on your whole portfolio. If your money is spread more evenly across many companies, no single one matters as much.
Concentration is a description of how a portfolio is built, not a prediction. It says how exposed you are to a few names, not whether they will do well or badly.
Two simple ways to measure it
Ownsight shows two measures for the shares part of a portfolio. The first is the share held by the 10 biggest companies. The second is an equal-company equivalent: it squares each company's share and adds them up, then divides one by the total. The answer reads as 'behaves like an equal mix of N companies'. The lower N is, the more a few companies drive your results.
- Ten companies, each 10% of the shares you hold
- Like 10 equal companies
- One company at 50%, fifty others sharing the other 50% equally
- Like about 3.9 equal companies
In the second case there are 51 companies, but 0.5 squared plus fifty times 0.01 squared is 0.255, and one divided by 0.255 is about 3.9. One very large holding makes the portfolio behave as if it held far fewer companies.
Why many funds can still be concentrated
Funds that track large-company indices tend to hold the same large companies. Adding a second or third such fund can increase the weight of the same names rather than spreading your money across new ones. Looking through to the companies, rather than counting funds, is what shows this.
What the figures cannot tell you
Where we cannot see inside a fund, its companies are missing from the calculation, so the real concentration is likely a little higher than shown. Ownsight tells you how much of your money the figure covers. Ownsight is in private preview. Fund holdings come from a demo dataset of each fund's largest holdings, so company-level totals cover the part we have data for, and the results say how much that is.
Whether a given level of concentration is right for you depends on your goals, your timescale and your circumstances. Ownsight does not know these and does not give advice.
Questions
- Is high concentration always bad?
- Concentration is one description of a portfolio, not a verdict. It increases dependence on a few companies, which can work in either direction.
- Does cash or a bond fund count?
- The two measures describe the shares part of a portfolio. Other asset types are shown separately.
- How do I check my own concentration?
- Add your holdings to the portfolio check and open the overview. It shows the share held by the 10 biggest companies and the equal-company equivalent.
Try it on your own holdings
Add what you hold and see the companies, overlap, concentration and charges behind it. Ownsight never connects to your broker or bank.
Measure the concentration of your portfolio