Goldman Sachs analysts address the issue of rising market concentration, highlighting three key areas: US market dominance, technology sector dominance, and large-cap dominance within regions.
A note from the investment bank acknowledges that concentration isn't inherently negative, stating, "Market dominance is not unprecedented and is only a problem if it is not supported by fundamentals."
However, Goldman Sachs emphasizes the importance of diversification, particularly at the stock level, where historically, dominant companies haven't consistently maintained top performance.
Their key recommendation to mitigate concentration risk is "a more diversified geographical exposure."
While acknowledging the strong fundamentals of the US market, Goldman Sachs argues for diversification beyond US equities. They note that high correlation between the US and other markets can limit the diversification benefit in some regions, particularly Europe.
Goldman Sachs believes there are compelling investment opportunities outside the US, and a globally diversified portfolio that considers companies beyond US borders is crucial to mitigate concentration risk.