Concentration Risk: How Concentrated Is Your Portfolio Really?
The most treacherous concentration risk is the one that feels diversified: an MSCI World ETF, an S&P 500 ETF and three US tech stocks don’t make a broadly spread portfolio — they make a leveraged bet on the same market. To measure concentration seriously, you have to look through the ETF wrappers — at the stock, sector and country level.
Quantifying the concentration: USA, tech, Mag 7
Even the “diversified” default is more concentrated than many think: the MSCI World holds around 1,400 stocks but weights roughly 70% USA, and its ten largest positions — dominated by the Magnificent 7 — make up about a fifth of the index. Add Nasdaq 100 or S&P 500 ETFs and individual US tech stocks, and you stack the same names on top of each other. On a €100,000 portfolio, €8,000–10,000 can easily hang on a single stock — invisible in your account statement. The ETF overlap check shows how much your ETFs overlap.
Concentration risks, ETF overlap and look-through analysis – free with MoneyPeak.
Measure instead of guess: look-through and home bias
A look-through analysis dissolves all fund positions into their constituents and aggregates them. Three metrics are worth checking:
- Top 10 weight: what share of the total portfolio hangs on the ten largest effective positions? Above 25–30% it gets sporty.
- Country allocation: if your US share sits clearly above the ~70% of the MSCI World, you are running an active overweight — deliberately or not.
- Home bias: German investors routinely overweight domestic stocks at a multiple of the ~2% Germany represents in global market cap — often correlated with their job and property on top.
Exactly this aggregation across all ETFs and single stocks is the core of MoneyPeak’s portfolio analysis.
Countermeasures: three levers, different dosing
If the measurement shows action is needed, there are three established routes — each with a price:
| Lever | Effect | Trade-off |
|---|---|---|
| Add an ex-USA building block | Cuts US weight precisely without selling the core | Extra position, rebalancing required |
| Equal-weight variant | Defuses mega-cap clusters within the index | Higher TER, deviation from the market portfolio |
| Add EM/small caps | Broader market and country coverage | Higher volatility, longer dry spells possible |
Frequently asked questions
When does a position become a concentration risk?
There is no hard limit; common rules of thumb are a maximum of 5–10% for a single stock, and heightened attention once the effective top 10 exceed 25–30% of the portfolio. What counts is the effective look-through weight, not the position list in your account.
Is the high US share in the MSCI World already a concentration risk?
It mirrors market capitalisation, so it is not an active bet as such. It becomes a risk mainly when additional US-heavy positions push the weight further — then ex-USA building blocks are worth a look.
How do I spot overlaps between my ETFs?
Via a look-through analysis that dissolves all funds into single positions and aggregates them. Tools like MoneyPeak do this automatically and show which stocks sit in your portfolio multiple times.
Concentration risks, ETF overlap and look-through analysis – free with MoneyPeak.