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Insight · December 2025

Diversification and index concentration

CD Portfolio Pty Ltd
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Index concentration

The Australian index is weighted towards banks and materials. The US index is weighted towards a small number of technology companies.

A holder of a broad index fund takes the concentration of that index.

Asset classes

The book covers listed Australian equities, international equities, direct property, fixed income and credit, infrastructure and real assets, and private family businesses. Each sleeve has a target range in the Investment Policy Statement.

Cash flow drivers

Diversification is assessed on what would cause two sleeves to fail at the same time, not on the label of the sleeve. Property rent, credit interest, infrastructure concessions and private business earnings respond to different variables.

Geographies

The majority of the book is Australian, where franking credits apply to the family's tax position. A smaller international sleeve provides currency diversification and exposure to cash flows not available on the ASX.

Where diversification stops

Every holding clears the same threshold. Where an asset does not, the capital stays in cash rather than being spread across additional holdings.

In Short

Summary

Key takeaways

  • The Australian index is weighted towards banks and materials.
  • Each sleeve has a target range in the Investment Policy Statement.
  • Diversification is tested on what would cause two sleeves to fail together.
  • The majority of the book is Australian; a smaller international sleeve provides currency diversification.
  • Capital stays in cash rather than being spread across holdings that do not clear the threshold.
Questions on This Note

Questions readers ask about this note

Questions received on this note.

They operate at different levels. The cap limits the effect of any single mistake. Concentration refers to the number of holdings that have cleared the threshold, which is small. Capital stays in cash rather than being spread across additional names.

It weakens equity-only diversification. The office diversifies across cash flow drivers — property rent, credit interest, infrastructure concessions and private business earnings — rather than across more shares in the same index.

Holdings that have cleared the threshold are owned in sizes too small to matter, positions are added that cannot be monitored properly, and costs are paid on all of them.

By asking what would cause it to fall at the same time as everything else owned. If the answer is the same variable — the equity risk premium or the policy rate — it is not diversification.

These notes describe how one family office manages its own capital. They are general information only and are not personal financial advice.