30/03/2026
I don't normally ad these notes from Product providers, however noting the current global circumstances please see a very thorough update from Damon at Van Eck this morning. (excerpt)
Good morning,
Following up on yesterday's note (I can resend if needed) on Australian equities and concentration, the same issue was highlighted in two separate pieces in the Australian Financial Review
Concentration is a risk, and the Australian share market, as represented by the S&P/ASX 200, is one of the most concentrated in the world
We have conducted an analysis that shows that it has recently become more concentrated, and it has done so at a fast pace.
In the past, when this dynamic was witnessed, it has historically been followed by a period of relative outperformance of equal weighting relative to market capitalisation, noting, of course, that past performance should not be relied upon for future performance.
The VanEck Australian Equal Weight ETF (MVW) is a portfolio construction solution that aims to reduce concentration risk and can be deployed to diversify without one security or sector dominating, providing a more balanced exposure to Australia’s economy.
As we noted yesterday, rate rising environments have also, in the past, been a period when MVW has outperformed the S&P/ASX 200; we also think that the current dividend yields of MVW, relative to the S&P/ASX 200, support its consideration.
We also think smaller companies, i.e. smaller-sized than the mega-caps, may present an opportunity at current valuations.
The Australian research community has reinforced their conviction in MVW’s strategy with favourable ratings, including:
Lonsec – Highly Recommended
Zenith – Recommended
Another diversification tool is our VanEck Australian Long Short Complex ETF (
ALFA
), which uses a dynamic quantitative stock selection approach utilising sophisticated computations and programmed learning designed to be agnostic of market cycles and style rotations.
While no one knows what will happen for the rest of 2026, we think diversification, rather than concentration, is a prudent approach.
For a customised portfolio solution incorporating
MVW
or
ALFA
to improve Australian equity exposures
MVW
could be included as a low-cost core portfolio to replace/complement an active manager and/or S&P/ASX index tracker, or
ALFA
could be included as a satellite exposure to replace/complement an active long/short fund.
Concentration in the media
Our research on ASX concentration risk was featured in two articles in yesterday’s Australian Financial Review:
a front-page markets piece by Alex Gluyas:
Super funds at risk as war triggers ‘overcrowding’ of the ASX
;
a Chanticleer column by James Thomson:
Iran shock will lock in the downturn we have to have
This coverage reinforces what we outlined in yesterday’s investment note: concentration in the S&P/ASX 200 is rising at a pace not seen outside of a crisis, and historically these are the conditions that have coincided in the past with periods when equal weighting outperforms market capitalisation (noting, as always, past performance is not indicative of future performance).
We think it is worth reinforcing why we think this matters for portfolio construction right now.
The concentration signal
The top 10 stocks in the S&P/ASX 200, as at the 27th
March 2026, account for 49.2% of the index, up from 45.6% in November 2025.That increase of 3.6% in just four months is faster than during COVID (43.9% to 46.7% in three months) and faster than the first four months of the GFC. The only period with sharper moves was late 2008, at the peak of the financial crisis.
We examined 20 years of monthly S&P/ASX 200 constituent data to test whether concentration at the start of a period predicts subsequent equal-weight outperformance
The key findings:
When concentration has been at or above its long-run average (48.6%), equal weighting has outperformed over the following five years in
every single observation 91 out of 91. A 100% hit rate, with average cumulative outperformance of +15.5%.
At concentration levels similar to today (48-50%), the historical win rate is 86%, with average cumulative outperformance of+4.0%.
At March 2021 levels (45.5%), the win rate was just 35%, with average cumulative underperformance of -1.6%. We believe the regime has shifted.
Concentration peaked at 56.6% in April 2013 during the post-GFC bank and mining boom. That period produced the strongest outcomes in our dataset, with average five-year outperformance of +22.1%. There remains significant headroom from today's level to that peak.
The direction of travel matters. If the current macro uncertainty persists and concentration continues to rise, as the AFR's Chanticleer column today suggests it is likely under HSBC's scenario of sustained oil above US$100, the forward case for equal weight strengthens with every tick higher.
If you would like a copy of the complete article please email me.
Enjoy your Easter Break.
