Featured article: When is an index too concentrated?
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Featured article
When is an index too concentrated?
Episodes of stock market concentration are dramatic and often short-lived. But they can pose a real challenge for fund managers. In this insight, we review some past episodes of market concentration and look at how fund and index rules specify minimum levels of diversification.
Nokia, VW and stock-specific index risk
Sometimes, individual stocks can gain an outsized stock market footprint.
In 2000, during the technology, media and telecoms (TMT) bubble, Nokia reached a peak weight of 70% in Finland’s stock market index.
Once the bubble deflated, the Finnish company’s share price never again reached the same heights.?
However, its commercial performance remained impressive for some years: Nokia sold half of all mobile handsets by 2007. That year saw the launch of the iPhone, the first of the smart phones that would eventually put an end to Nokia’s dominance.?
Germany’s equity market threw up another example of stock-specific risk later that decade.
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