Six funds to protect you from concentration risk

By Juliet Schooling Latter on 4 June 2026 in Equities

What matters with diversification is how correlated funds are to one another. The less correlated an asset is, the more value it brings to a portfolio.

Finding assets that are truly uncorrelated is harder in practice than it is in theory. In a crisis, assets can become increasingly correlated. In 2008, for example, many equity, bond and property funds all suffered heavy losses at the same time – it was a similar story during Covid in 2020. Correlations are constantly changing, and just because something was uncorrelated in the past doesn’t mean it will be in the future. So building a portfolio that can truly protect takes a great deal of time and effort.

Why concentration risk matters more than ever

The narrative of the past decade has been about the dominance of US mega-cap technology stocks and the growth of passive investing. Since 2011, more than $3 trillion worth of assets has moved from active to passive funds* – meaning they now account for a higher percentage of the US stock market than active funds. This has also helped the growth of some of those big tech players who make up a large part of many popular passive indexes.

This heavy reliance exposes passive investors and the broader market to outsized risks if tech-driven earnings slow or AI capital expenditures fail to deliver the expected profits.

Can AI justify today’s valuations?

It should be noted that while market concentration among the Magnificent 7 (Apple, Microsoft, Google, Amazon, Nvidia, Meta and Tesla) is elevated compared to history, today’s valuations are supported by significantly stronger earnings power than during previous peaks.

The reality is we do not know how big an impact AI is going to have on the market (and how many companies will successfully monetise it). For example, we’ve seen how expectations from AI have dramatically re-priced the software sector (and not in a good way!) amid fears that it could disrupt business models.

Looking beyond the US technology trade

There is no doubt tech has been a successful play in recent years. Driven by those tech behemoths, the S&P 500 has returned almost 740% in the past 15 years, more than treble the returns of the likes of UK, European and Emerging Market equities***.

The offshoot is we now have 71.2% of the MSCI World index in US equities (and a third in technology and communication services)****. Should things turn and earnings slow or margins tighten it could result in a significant de-rating for stocks with such elevated earnings.

There is a growing consensus that 2026 needs to be the year that AI companies demonstrate a path to profitability to justify those lofty valuations. For example, the Goldman Sachs Non-Profitable Tech index has risen by over 100% from the lows of April 2025^. To put this into perspective, in 2020, the index soared to over 300% before wiping out all its gains during the 2022 bear market^.

Six funds offering diversification benefits

With this in mind, we did a little research into some of our funds at FundCalibre and have highlighted a few funds offering meaningful diversification to the MSCI World/Information Technology Index over the past decade^^. The figures range from -1 (where something moves in the exact opposite way to the index) to +1 (where it moves in lockstep with the index).

Absolute Return

Jupiter Merian Global Equity Absolute Return (-0.15 correlation)

This fund has historically enjoyed a low correlation both to global equities and to global bonds – making it an ideal diversifier. Jupiter Merian Global Equity Absolute Return is a long/short equity absolute return fund. It targets an absolute return over rolling 12-month periods. The fund’s philosophy is that markets are not fully efficient due to a number of investor behavioural and psychological biases.

The team believe that investment styles are cyclical and seeks to profit by forecasting which styles are most likely to perform in a particular market environment. The fund holds between 600 and 1,200 positions, both long (profit when the share price goes up) and short (profit when the share price goes down), with a target net exposure of zero. The fund has returned 38% in the past three years^^^.

China

Fidelity China Special Situations (0.20 correlation)

Chinese stocks have historically exhibited low correlation with US markets. While the US market has had technology as its centrepiece for years, China is catching up in the AI race, with the arrival of DeepSeek causing a trillion-dollar sell-off in the Nasdaq in 2024.
Fidelity China Special Situations has been a strong performer over the long term for investors (46% in the past three years alone^^^). Aided by a well-resourced team, manager Dale Nicholls has a bias towards small and medium-sized companies. The trust also has reasonable exposure to A-Shares, an area which has a particularly low correlation to global markets because of the unique economic, political and monetary policy considerations.

Fixed Income

M&G Global Macro Bond (0.23 correlation)

M&G Global Macro Bond’s low correlation is tied to its ability to invest flexibly across government bonds, interest rate markets, currencies, inflation linked debt, duration and selective credit positions.

The process starts with a look at the global macroeconomic picture to identify the things that are going to affect bond markets over the next few years. The managers will move on to choosing the bond markets they like the most and create an overarching asset allocation. Not only does this identify the bond markets they prefer, but also which instrument is best to implement that choice. The fund also yields 3.4%^^^^.

UK

Schroder Recovery (0.37 correlation)

This is a value fund, so its core holding tend to be focused on areas like financials, industrials, energy, mining and consumer cyclicals. The managers explicitly run a contrarian style, which historically behaves differently from momentum-driven growth sectors like US tech.

The managers look for unloved stocks trading at low prices in this unashamed value fund. To find these, the team will perform in-depth analysis on a company’s financial statement, looking to answer seven key questions, ranging from how a company turns profits into cash, to how well it can manage its debt levels. The team do not meet company management; instead, they focus purely on the fundamentals and stock valuation. They are therefore willing to be very patient before buying a stock. It has returned 54.4% in the past five years^^^.

India

Goldman Sachs Indian Equity Portfolio (0.42 correlation)

India is very much an AI-laggard – the bigger companies in India have often been on the IT and services side, something which has hit performance in recent times. However, it has numerous tailwinds such as strong demographics, growth, few geopolitical concerns, strong corporate governance, and the growing online economy. Goldman Sachs Indian Equity is a multi-cap portfolio of around 70-90 stocks. It has returned 17% in the past three years^^^.

Global

JOHCM Global Opportunities (0.57 correlation)

Global equities are often seen as a one stop shop for investors, and there are funds which you can access without being overly exposed to US large-cap technology. A good example is JOHCM Global Opportunities, which only holds 43% in US equities (10% in technology)^^^^. Manager Ben Leyland has a lower exposure amid concerns about the rising capital intensity of these large tech companies, while he also believes there are growing opportunities in the likes of Germany and Japan. The fund has returned 35% in the past three years^^^.

*Source: London Business School, ICI Facebook 2024
**Source: RBC Wealth Management, 22 January 2026
***Source: FE Analytics, total returns in pounds sterling, 26 May 2011 to 26 May 2026
****Source: index factsheet, 30 April 2026
^Source: Allianz Global Investors, data at 1 October 2025
^^Source: FE Analytics, asset correlation to MSCI World/Information Technology Index, as at 26 May 2026
^^^Source: FE fundinfo, total returns in pounds sterling, 26 May 2023 to 26 May 2026
^^^^Source: fund factsheet, 30 April 2026