When the wind shifts

Index concentration: warning signal or normality?

At first glance, the stock markets appeared robust until mid-2024. The S&P 500 reached new highs and large tech companies such as Apple, Microsoft and Nvidia dominated the headlines with extraordinarily high returns. But this gloss is deceptive: behind the façade lurks a risk that investors should not underestimate - the massive concentration in the major indices. Just ten stocks accounted for over 27% of the entire S&P 500 at the end of the year. Anyone who remembers the dotcom bubble or the financial crisis will know that such concentrations of individual stocks have rarely been a good omen in the past. When a few stocks set the direction, even small shocks are enough to set the entire market in motion - in both a positive and negative sense.

These index heavyweights are currently extremely risky stocks. Their price trends are characterized by high volatility and their drawdowns are particularly severe during periods of stress. What's more, they are expensive. Very expensive. Tesla, for example, had a price/earnings ratio (P/E) of 113 as at mid-March - which is astronomical compared to an average of 19.5 in the MSCI World. Such valuations presuppose enormous future growth - but what if these expectations are not met?

Major political uncertainties from the USA

A high concentration of individual stocks, riskier and also expensively valued shares - undoubtedly a worrying starting point. And yet markets can sometimes withstand such an escalation for years - until an event breaks the camel's back. There is currently no shortage of such potential triggers. The geopolitical situation is escalating dramatically. Since Donald Trump's return to the White House, the economic climate has changed dramatically and led to global uncertainty. The Economic Policy Uncertainty Index - a measure of the uncertainty of economic conditions - has reached new highs. At the same time, protectionist tendencies are on the rise with the introduction of new tariffs. Historically, such measures have led to significantly higher market volatility - which has caused cyclical and capital-weighted equity strategies to falter.

Performance in the current stress phase: OLZ strategies show strength

It is precisely in such market phases that a risk-optimized investment approach can show its great advantage. Our "OLZ Equity World ex Switzerland" portfolio is based on a minimum variance approach that systematically reduces volatility in a targeted manner. While many investors hope for spectacular returns, we focus on stability and risk minimization - with remarkable results: Since 1 July 2024, our fund has achieved a return of +5.48% as at 04.04.2025, while the MSCI World ex Switzerland Index lost -9.81% over the same period. At the beginning of 2025, the trend was even more pronounced: while the major technology stocks - and with them the entire index - fell by over 15%, our strategy was only slightly down (-1.39%).

This success is no coincidence. Our portfolio has significantly lower cluster risks: As at the last rebalancing (19.02.2025), the weighting of the ten largest stocks is around 10% lower than in the index, the share of the USA has been reduced by 67% and the IT sector is even weighted 77% lower. This diversification ensures significantly lower fluctuations - around 40% less volatility in the long term than the MSCI World ex Switzerland Index. For investors, this means more stability, greater peace of mind and the opportunity to hold even a higher equity allocation in the long term without increasing the risk.

In addition to risk management, sustainability also plays a central role in our strategy. The ESG score of our portfolio is significantly higher than that of the benchmark, while the CO₂ intensity is reduced by over 50%. So if you want to invest not only safely but also responsibly, our approach is a convincing alternative.

Looking into the crystal ball, what's next? Lessons from the past

Current developments are not the only evidence that a risk-optimized concept works. A look at the past also provides valuable insights. The current situation is strikingly reminiscent of the dotcom bubble: in the first phase, tech stocks rose rapidly - similar to the situation from the coronavirus crisis until the middle of last year. In phase two, the bubble burst and the markets corrected sharply, while minimum volatility strategies recorded significantly lower losses. In the third phase - the recovery - the Minimum Volatility Index continued to outperform the Nasdaq 100, which was apparently still suffering from the after-effects of the burst tech hype.

Conclusion: those who invest more wisely sleep more soundly

In an environment characterized by uncertainty, overvaluation and geopolitical tensions, it is worth looking at strategies that focus on risk control and long-term stability. The minimum variance approach is not a fad - it is a proven way to stay on course even in turbulent times. Those who focus on systematic risk reduction, lower concentration and sustainable diversification today can not only sleep better, but also invest more successfully in the long term.