What happened
In September, BHP and Commonwealth Bank accounted for over 20% of the S&P/ASX 200 market capitalisation. Drops of 6.2% in BHP and 5.6% in CBA generated 54% of the index’s total 2.42% monthly decline, illustrating that the index has an effective concentration equivalent to holding just 27 stocks equally.
Why it matters here
Index-unaware investors holding broad market-cap weighted Australian equity funds carry significant sector and stock concentration risk. Rebalancing strategies or equal-weight allocation methods may be required to shield long-term portfolios from localized downturns in mining and retail banking.
What to watch
Comparative performance metrics between traditional market-cap weighted ASX 200 funds and equal-weighted ETF alternatives over the upcoming quarterly rebalance.
Source
vaneck.com.au