The analysts of Goldman Sachs analyzed the trend of increasing market concentrationfocusing on three main areas: the dominance of the US market, the preeminence of the technology sector and the dominance of large capitalization companies within specific regions.
A report from the investment giant recognizes that market concentration It is not automatically harmfulstating: “A dominant market position is not without precedent and it only becomes a problem if you lack a solid foundation in business fundamentals.”
However, Goldman Sachs emphasizes the importance of diversificationespecially when it comes to individual stocks, where historically leading companies have not consistently stayed ahead in terms of performance.
The strategy that Sachs recommends
They advise a key strategy to reduce the risk associated with concentration: “expand investment to include a broader range of geographic locations“.
Despite strong underlying business strengths in the US marketGoldman Sachs advocates investing in markets other than the United States. They note that a high similarity in performance trends between the United States and other markets can reduce the benefits of diversification in certain areas, especially in Europe.
The giant identifies attractive investment prospects in countries outside the United States, and they affirm that a globally diversified portfolio, which includes companies from several countries, is essential to reduce concentration risk.
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It should be remembered that the Last year was one of juicy profits for investors thanks to the group of technology stocks known in the market as “The Magnificent 7” (Apple, Meta, Microsoft, NVIDIA, Amazon, Alphabet and Tesla). These performances not only boosted the G7 techno, but also positively influenced the other stock indices, overlooking the less favorable performance of the rest of the S&P 500 components.
Although the stock index broke 5,000 points this year for the first time in its history, much of that good performance was very concentrated on those seven companieswhich suggests that there may be a bubble in sight, in the style of the one that occurred in the year 2000, with the calls “dot com” and the rise of the Internet. Now, the protagonist would be artificial intelligence.
