Letter: Artificial intelligence is giving diversification a bad name
Letter: Artificial intelligence is giving diversification a bad name
https://www.ft.com/content/5d326d3f-e915-4722-84ae-c719705d7cf8
Publish Date: 2026-06-19 19:14:00
Source Domain: www.ft.com
- The rise of artificial intelligence (AI) in the investment world is attracting capital towards a few dominant companies, creating a convergence of investment strategies regardless of the diversified labels used.
- The indexing system, which follows market verdicts without question, drives funds to buy into rising stocks, reinforcing market enthusiasm and circular discipline where weight leads to demand and apparent validation of original excitement.
- Diversification is becoming superficial, with investors holding a variety of labels while being exposed to the same underlying economic narrative due to the pressure to mimic dominant index weights.
- Active fund managers are incentivized to follow market trends, as deviating from benchmark trends can be detrimental to their careers, leading to a collective rational yet concentrated investment approach.
- The governance problem arises from the framework that rewards imitation and outsourcing responsibility to benchmarks designed to measure rather than govern, thus hindering true diversification and critical market corrections.
- The primary issue is not about choosing the right AI company but understanding that effective diversification requires the freedom to deviate from market trends proactively, before the market can recognize its misalignment.
- Passive investing, which is often criticized as less active, may actually be the most powerful force leading to capital concentration, highlighting the need for a change in how diversification and risk management are approached in the investment world.
