After a period in which narrow market leadership has been handsomely rewarded, diversification can appear almost unfashionable. Paul Niven, Fund Manager of F&C Investment Trust, argues that concentration itself is a reason to remain disciplined – and that a global, actively managed portfolio can help investors navigate an unpredictable decade ahead.
Periods of market concentration are not unusual, but they can be seductive. When a narrow group of companies drives a large share of global equity returns, it can become tempting to mistake recent leadership for permanent superiority.
The challenge for long-term investors is not simply identifying today’s strongest businesses. It is judging how much optimism is already reflected in valuations, how resilient earnings may prove to be, and whether a portfolio is overly dependent on a narrow set of outcomes.
Concentration is not a strategy
Today’s backdrop gives investors plenty to debate: the durability, and profitability, of AI-related capital expenditure, the path of inflation and interest rates, geopolitical fragmentation, and the extent to which index-level returns are being shaped by a relatively small cohort of very large companies.
None of this argues against owning exceptional businesses. It does, however, argue against allowing a portfolio’s risk profile to be defined by one prevailing narrative. Market leadership can persist for long periods of time, but many past winners rarely remain dominant over the long term.
The dominance of the US market and a small number of outstanding companies has challenged the case for diversification in recent years. But I do not believe it has invalidated it. If anything, concentration risk makes portfolio construction more important, not less.
“Concentration risk makes portfolio construction more important, not less.”
Diversification does not remove market risk, nor does it guarantee smoother returns in every period. Its value lies in reducing reliance on a narrow set of dominant themes and giving investors exposure to multiple, more diversified, sources of long-term return.
A portfolio built for more than one future
At F&C, we apply that discipline across geographies, sectors, asset classes and investment styles, including exposure to specialist managers and selected private equity investments. The objective is not diversification for its own sake, but a portfolio structure that can participate in long-term growth while being less beholden to any single view of the future.
“The objective is not diversification for its own sake, but a portfolio structure that is less beholden to any single view of the future.”
Active asset allocation is central to this. We can adjust exposures as valuations, economic conditions and investor sentiment evolve, rather than simply following the composition of an index.
Discipline developed since 1868
Since its founding in 1868, F&C has helped generations of investors work towards their long-term financial goals. Over that time, market leadership has passed from one industry, country and investment theme to another. The Trust’s portfolio has evolved, but its underlying discipline has remained consistent: spread risk, seek opportunities widely and avoid allowing short-term excitement driving long-term decisions.
Our primary objective is to deliver long-term growth in both capital and income. In my view, the relevant question is not which part of the market looks most compelling today, but whether a portfolio is resilient enough to deliver on our objective while remaining invested through a range of possible market environments.
A core holding for long-term investors
For investors using investment trusts within an ISA or wider portfolio, F&C can serve as a global core holding: diversified across both public and private markets, managed with a long-term horizon and designed to sit alongside more specialist exposures.
There will always be a powerful argument for owning more of what has worked recently. Sometimes that argument will prove right. But long-term investing is rarely about maximising exposure to a single prevailing trend. It is about building portfolios that can compound through changing market conditions. For me, that is the enduring case for diversification.
Capital at risk. The value of your investments and any income from them can go down as well as up and you may not get back the original amount invested.
Issued by Columbia Threadneedle Management Limited and approved for distribution 19/10/2026.
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