By Ruan Breed *
For decades, the FTSE/JSE All Share, the S&P 500 and the MSCI World have served as the yardsticks against which many every portfolios are measured. Managers are hired against them, fired against them, and remunerated against them. The question worth asking in 2026 is whether those yardsticks still measure what we think they do.
The concentration problem
The original case for a market cap weighted index was simple. It gave you cheap, diversified exposure to a broad opportunity set. That premise no longer holds the way it used to.
By the end of 2025, the top ten holdings in the S&P 500 accounted for close to 40% of the index, up from roughly 20 to 28% between 1990 and 2010. Seven US technology names, the so called Magnificent 7, drove the bulk of returns. The Russell 1000 Growth is even more lopsided, with its top ten contributing around three quarters of 2025’s calendar year return. The MSCI World, which many South African investors hold for “global” exposure, derives almost 70% of its weight from a single country and around 27% from just ten stocks.
Is JSE any different? Think again.
The JSE is arguably the more extreme case. Naspers and Prosus together still sit at close to 20% of the Top 40, and the top ten names hover around two thirds of the index. When a investor buys “broad SA equity” through a Top 40 tracker, what they are actually buying is a geared bet on Tencent, two or three banks and a handful of resource counters. Especially the latter.
Why this matters (mechanically)
A market cap weighted index is, by construction, a momentum vehicle. As prices rise, passive flows must buy more of what has already gone up to maintain weights. When prices fall, the same flows reverse. That reflex amplifies both ways. The index stops behaving as a market proxy and starts behaving as a thematic fund – something we have seen taking shape more and more. It is momentum and volume more than anything else.
This is not a forecast. It is arithmetic. And it is global. Brown Advisory’s recent research notes top ten concentration of 62% in Germany, 57% in France and 47% in China. Rising concentration is not a US story; it is the story.
What it means for portfolio management
Three practical implications follow.
Performance evaluation needs more nuance. Judging an active manager against a hyper concentrated index in a year when seven stocks did the heavy lifting will almost always make a properly diversified manager look weak. That is not failure; it is the benchmark behaving badly. The honest comparison is against the manager’s stated opportunity set, peer group, and risk adjusted return. How does an index make certain adjustments to protect capital? It doesn’t.
Risk has to be measured separately. Investors benchmarked solely to the JSE Top 40 is, whether they realise it or not, accepting that close to a quarter of their domestic equity risk sits in one counter. That is a conversation worth having before the next drawdown, not after. Active share, sector exposure, and stress tested drawdowns tell you more about real risk than tracking error ever will.
Goal alignment matters more than relative ranking. Most investors are not trying to beat an index. They are funding retirement, preserving capital after a business sale, matching a living annuity drawdown, or hedging rand risk. For those mandates, absolute return targets such as CPI plus 5%, drawdown limits and liability matching are more meaningful measures of success than a quarterly horse race. Sequencing risk also comes to mind.
The maths reinforces this. A portfolio that falls 33% must rise 50% just to break even. Avoiding deep losses compounds wealth more reliably over time than chasing every rally, even if it means lagging during speculative phases. For what it’s worth, it also makes you sleep better at night.
So, are benchmarks still relevant?
Yes, but in a narrower role than the industry often assigns them. A benchmark is a useful reference point. It is a poor proxy for the economy, a worse proxy for an opportunity set, and a dangerous one to confuse with an investor’s actual objective.
We still measure performance against indices because investors and trustees expect it and because comparability matters. We pair that with absolute return targets, peer group context, downside metrics, and a clear view on what each portfolio is meant to achieve. The discipline is to use the benchmark as the gauge, not the goal.
The more useful question in today’s markets is not “did we beat the index?” It is “did the portfolio do its job?”
* Ruan Breed is a financial adviser at Brenthurst Wealth Stellenbosch ruan@brenthurstwealth.co.za