I have been a long-time skeptic of the ASX 200, and the numbers from the past year make the case better than I ever could.
Over the last 12 months, our benchmark index crawled to a 4% gain. In that same period, the S&P 500 in the US returned 24%, and the MSCI All Country World Index, which tracks nearly every investable share market on earth, returned more than 25%. If you held an ASX 200 tracker fund instead of a simple global index fund, you left a quarter of your potential return on the table.
The reason comes down to one word: concentration. Financials make up roughly 28% of the ASX 200 on their own. Add materials, the miners, and those two sectors account for close to half the entire index. Commonwealth Bank alone is worth more than 7% of the index. When the banks are flat and the miners are dealing with soft commodity prices, there is nothing else big enough in the index to pick up the slack.
To be fair, the US market's run has its own concentration problem, just pointed at a handful of AI and technology giants instead of banks and miners. That is not a flaw in my argument, it is the point. Concentration risk does not disappear when the concentrated bet happens to be winning. It goes quiet until it is not.
I have not been bearish on the ASX without exception. When commodity prices spike or banks rerate through a rate cutting cycle, the index has its moments. But those moments tend to be short, cyclical, and dependent on global conditions outside Australia's control, not signs of a structurally diversified, growing market.
My take for anyone reading this with a self managed super fund or a brokerage account full of bank and mining stocks: home bias feels safe because it is familiar, not because it is actually safer. Dividends and franking credits are real benefits, so I am not saying abandon Australian shares. I am saying the rest of the world should make up a meaningful slice of your portfolio, because right now too many Australians are making a concentrated bet on two sectors without realising it.
"Diversification is a protection against ignorance."— Warren Buffett, Berkshire Hathaway 1996 annual meeting
Financial Disclaimer. This content is general in nature and has been prepared without taking into account your personal objectives, financial situation, or needs. It does not constitute financial product advice under the Corporations Act 2001 (Cth). Before acting on any information contained in this post, you should consider whether it is appropriate for your circumstances and, if necessary, seek independent financial advice. References to specific companies, markets, prediction tools, or investment strategies are for informational and educational purposes only and do not constitute a recommendation to buy, hold, or sell any financial product. Past events and probabilistic frameworks discussed are not reliable indicators of future performance.