High AI Concentration in Index Funds: How Your Global Fund Has Changed
Global index funds have become increasingly concentrated in US-based AI-related technology companies. This means many savers have a significantly higher sector and geographical risk than they realise.
What happened?
As of 31 July 2024, traditional global index funds have seen an increasingly high concentration in US technology companies focused on artificial intelligence. In several popular global funds, over 70 percent of capital is invested in US stocks. Up to 30 percent of the funds' total capital is held by a few large AI-driven tech companies, while emerging markets are entirely omitted from market-weighted indices like MSCI World.
Key facts
| Andel i USA-aktier | Över 70 % |
|---|---|
| Andel i AI/tech-jättar | Upp till 30 % |
| Tillväxtmarknaders andel av global BNP | Cirka 40 % |
Why it matters
Investors have traditionally chosen global funds based on the principle of diversification to reduce risk. When a large portion of capital is concentrated in a few US giants, the volatility of the funds increases if the valuation of the AI sector shifts. Since emerging markets account for around 40 percent of global GDP but are entirely missing from common global market indices, savers are also missing exposure to these economies.
Who is affected?
This affects millions of Swedish private savers who have their long-term pension and fund savings placed in broad global funds. Swedish financial advisers and fund management companies are also affected in how they communicate risk and diversification.
Impact on the EU
EU regulations regarding financial information and risk management impose high demands on transparency towards investors. However, no specific EU legislation is being changed due to the concentration in the MSCI World index.
What else you should know
Historically, global funds have provided good risk diversification, but the dramatic increase in value among a few US tech giants during 2023 and 2024 has altered the structure of the indices. Savers who want exposure to emerging markets need to actively supplement their savings with specific emerging market funds.
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