Index funds are often sold on one big idea: diversification. But owning hundreds of companies does not always mean your money is spread as evenly as you think.
Tash and Jack take a closer look at what can sit underneath a seemingly simple ETF. They unpack concentration risk, overlapping funds and the point where a “passive” portfolio can start looking surprisingly active.
In this episode:
📊 Why owning hundreds of companies does not automatically mean your portfolio is evenly diversified
💻 How a small group of large US companies can make up a sizeable part of a market-cap weighted index
🏦 Why Australian index funds can leave investors heavily exposed to banks and mining companies
🧩 How owning several ETFs can create overlap rather than adding meaningful diversification
🌏 Why a fund labelled “global” can still have a large exposure to the US market
🎯 How adding thematic, sector or specialised ETFs can turn a passive strategy into a form of active portfolio management
🔥 Why investors can be tempted to add an asset or sector after it has already had a strong run
⚖️ The arguments for passive and active investing, including the role active investors play in setting market prices
🗳️ What happens to shareholder voting power when large investment managers hold shares on behalf of millions of investors
⏳ Why Tash and Jack keep coming back to a long-term approach rather than trying to predict the next winning sector
The big takeaway? An index fund can make investing much simpler, but “diversified” does not always mean evenly spread. It is worth understanding what you actually own, where your biggest exposures sit and whether adding another fund genuinely adds something new. Sometimes a simple portfolio can already be doing more than enough.
Disclaimer:
Any advice is general and does not consider your financial situation needs, or objectives, so consider whether it’s appropriate for you. You should also consider seeking professional advice before making any financial decision.
Pearler is an Authorised Representative 1281540 of Sanlam Private Wealth Pty Ltd AFSL 337927. Read the FSG available from https://pearler.com/financial-services-guide
If you are considering any of the products we spoke about during the show, be sure to read the Product Disclosure Statement & Target Market Determination available from the product issuer’s website before deciding.
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