Ep.117 – Dissecting Market Concentration: And America’s Grip on Global Markets with Laurentius van den Worm
Global market cap weighting continues to guide evidence-based investing. In this episode, Laurentius van den Worm, Head of Investment Strategy at Timeline explains why the global market remains the most informed benchmark for long-term allocation.
Why global market cap weighting makes sense
Global market cap weighting allocates to each company according to its share of global equity value. The listing location is irrelevant. Companies operate globally and earn globally. This is essential for advisers when explaining why the United States holds a large weight in global indices. Nearly half of the revenue from the largest US companies comes from outside their domestic market.
For deeper context on index construction, advisers can explore the methodology from MSCI
The market as a collective decision maker
Each day, global investors price assets based on expectations of future risk and return. Pension funds, sovereign wealth funds, family offices and retail investors all contribute to this equilibrium. The result is a portfolio that reflects global judgment rather than national bias.
For advisers who use evidence-based frameworks, resources on Adviser 3.0 offer helpful support for client conversations.
Market concentration and long-term wealth creation
The Magnificent Seven represent a substantial portion of the global market, supported by high profitability and global revenue streams. Concentration is a longstanding feature of equity markets and aligns with academic findings that a small number of companies drive most long-term wealth creation.
Advisers who want a structured overview of this pattern can refer to research summaries from major academic institutions, including well-regarded studies on market wealth distribution.
Why regional shifts do not always diversify
Moving equity exposure away from the United States into the United Kingdom or Europe offers limited diversification because correlations across these developed markets remain very high. Emerging markets present lower correlations but bring distinct risks that advisers should evaluate carefully with clients.
How advisers should think about currency risk
Clients often ask why a global index fund shows different returns to a local version. Equity returns reflect both asset performance and currency movement. Hedging currency exposure can support fixed-income portfolios that fund short-term liabilities. In equity allocations, leaving currency unhedged supports global diversification and avoids concentration in sterling.
Insights from central bank research show the long-term dominance of the dollar in global reserves and international trade, which reinforces this approach.
When factor tilts may support client goals
Global market cap weighting forms the foundation of evidence-based investing. Advisers who want to take a different route can tilt towards value, profitability or size. These tilts carry higher expected returns and also extended periods of underperformance. Advisers must therefore ensure that clients have the behavioural resilience to remain invested when these factors lag.
The academic base for these factors is well established and continues to be studied by universities and financial economists.
The global market remains a dynamic benchmark
The global index has never been static. The United States has held anywhere between thirty per cent and more than seventy per cent of global market weight at different points in history. Japan once held a larger share than the United States. Capital shifts naturally to where investors expect the most attractive long-term risk-adjusted returns. This continual evolution is what makes global market cap weighting such a reliable anchor for financial planning.
