“Over the past two years, the market has changed more than it did in the 30 years I’ve been in it.”
This observation from TBI Portfolio Manager and Strategist, Eugene Goosen, reflects the shift fund managers and investors have felt, even if they haven’t yet articulated it.
Markets today are being shaped by geopolitical forces that are moving faster and behaving less predictably than in previous cycles. The war in Iran is a case in point: traditional relationships are turning on their heads and are no longer stable backdrops to investment decisions – they are now active drivers of risk.
Seen through this lens, diversification begins to look less straightforward.
Are portfolios genuinely diversified, or are they simply repackaging concentration in different forms?
Does global exposure still offer meaningful risk dispersion, or has it introduced new layers of interconnectedness?
And if the traditional assumptions no longer hold, how should portfolios be constructed differently?
These questions formed the backbone of a recent webinar hosted by Sanlam Collective Investments, bringing together perspectives from Ninety One and TBI Investment Managers.
The concentration hiding in plain sight
One of the more uncomfortable realities emerging in global markets is that concentration has shifted form.
In equity markets, this is visible in the growing dominance of a relatively small number of companies driving index returns. But the issue runs deeper than performance concentration alone. The structure of indices, combined with the scale of passive capital tracking them, has reinforced exposure to the same underlying drivers.
What appears, at a surface level, to be diversified exposure across sectors or regions may in practice reflect a much narrower set of economic influences.
This is where the notion of “repackaging concentration” becomes relevant. Investors may feel diversified because they hold a range of assets across geographies, yet those assets can still be responding to the same macro forces, the same interest rate cycles, or the same underlying growth assumptions.
Why geography no longer tells the full story
Geographic diversification has always been one of the simplest ways to think about spreading risk. Allocate across the US, Europe, emerging markets, and the assumption is that exposure is meaningfully diversified.
But with the reverse trend in globalisation, as the discussion reveals, we need to challenge this traditional viewpoint.
As Ninety One’s Co-Head of Equity and Multi-Asset, Rehana Kahn pointed out, “if you look at the concentration in many of these indices, the top 10 can make up around 50%. And when you unpack that – take Taiwan Semiconductor, for example – it’s listed in Taiwan, but it’s a global business earning a large portion of its revenue outside the country.”
The implication is that a portfolio that appears to have exposure to a specific country may, in reality, be exposed to global demand cycles, international supply chains, and shared economic drivers.
Geography, in other words, is no longer a reliable shorthand for risk.
Liquidity is a big deal in fixed income
If diversification is becoming less intuitive, the natural next question is how this complexity manifests in practice, particularly in fixed income markets.
As Eugene Goosen noted, “liquidity is a big deal, and you need to manage liquidity in the portfolio in a more innovative way.”
Liquidity shapes how portfolios behave under stress, how quickly positions can be adjusted, and how effectively opportunities can be captured.
This becomes even more relevant in the context of what has been described as the “EMification” of developed market bonds. As debt levels rise across developed economies, these markets are beginning to exhibit characteristics more typically associated with emerging markets – including greater sensitivity to growth expectations and the introduction of risk premia that were previously less pronounced.
In this environment, the quality of borrowing becomes a central concern.
Says Goosen: “The crux of the question is – are they applying this money in a productive manner, or are they simply playing politics?”
This question cuts to the heart of credit risk. It is no longer enough to assume that developed market issuers inherently carry lower risk. The sustainability and productivity of debt are increasingly under scrutiny.
If the structure of markets has changed, it follows that the way portfolios are constructed must evolve as well.
Active Management in a Dynamic Environment
Diversification itself has not disappeared, but it can no longer be applied in a static or formulaic way. The tools remain available, but their effectiveness depends on how they are used.
Portfolio construction becomes a more dynamic process – careful positioning along yield curves, actively managing liquidity and adjusting exposures as conditions change.
Here, capital is key. And as Goosen remarks, we “underestimate the effect of leverage in the market,” particularly when positions become crowded and begin to unwind.
In this context, portfolio construction demands an understanding of how leveraged assets and the broader market are likely to behave under pressure.
Faced with changing information on a daily basis, managers need tactical asset allocation and active management, and, as Kahn notes, an extra dose of ‘humility to know things will change and only change sizing when we have the conviction.’
That combination of adaptability paired with discipline is what allows portfolios to navigate uncertainty without becoming destabilised by it.
A different way of thinking about diversification
For investors, particularly those looking outward from South Africa into global markets, the message is not to abandon diversification, but to engage with it more deeply.
At TBI, we link structure to behaviour, and allocation to application.
Watch the full discussion
The full webinar featuring Eugene Goosen, Rehana Kahn and moderator Pearlene Govender, Sanlam Investments Multi Manager Head of Research, is available here:
