We are delighted to share with you our recent research piece: “Is the Concentration Cycle Coming to an End?”.

You can download the piece below.

2022 turned out totally different from what most investors had anticipated in the beginning of the year – this shows yet again that trying to predict asset prices is everything but an easy exercise.

In this note, we do not aspire to make predictions about the future. Instead, we provide an interpretation of the most recent evolutions in markets that focuses on the observation of cycles of concentration and deconcentration; after a long period of record market concentration, equity markets experienced a first mean reversion since the beginning of the year. Even more interestingly, we argue why this first mean reversion still leaves a lot of room for a massive reduction of the still high market concentration.

The topic seems to be even more relevant today than ever before, given the massive exposure of investors to passive strategies. After the last extremely large drop of market concentration in 2000, index mutual funds’ total net assets grew significantly. According to the ICI 2022 factbook, in the US they grew from $384 billion to $5.7 trillion. The ICI numbers document that index mutual funds’ share of long-term mutual fund net assets more than tripled, from 7.5 percent at year-end 2000 to 25.9 percent at year-end 2021. Within index mutual funds, equity flows accounted for the bulk (82 percent) of net assets at year-end 2021. It is not surprising, but does explain why we have this record market concentration especially in equity markets.

If you wish to read the full Research piece, please fill in the form below: