With AI concentration bleeding across equities and bonds, PICTON’s Macan Nia says investors are building portfolios for a world that no longer exists
While 83 per cent of Canadian investors believe their portfolios are well diversified, only 57 per cent are even familiar with the concept of index concentration - the degree to which a handful of stocks dominate the benchmarks their money tracks.
Those are among the headline findings from a recent PICTON Investments survey, and for Macan Nia, senior investment strategist at PICTON Investments in Toronto, the disconnect is stark but not inexplicable.
“There’s a gap between investors’ understanding of what diversification is, and there’s a gap between the understanding of the level of concentration,” Nia said. “That can be understood because the world is dynamic, the world is quickly changing, and these factors have changed a lot in the last couple of years.”
He argues the knowledge gap stems from a world that has moved faster than investor habits. The traditional 60/40 split between equities and bonds worked well for decades, but the post-2022 environment - with stubborn inflation and rising concentration risk - has since exposed its limits. As a result, investors and advisors alike have been slow to update their assumptions.
“2022 was a good reminder that perhaps diversification needs to be reevaluated in terms of what it looks like,” he said, adding the survey data suggests there’s now appetite for change.
CPP’s shift offers a roadmap for investors
Additional findings found that only 8 per cent of surveyed investors currently hold alternative investments but 60 per cent said they want to learn more. Despite the low adoption rate and while the right allocation depends on individual factors like age, liquidity needs and goals, Nia points to Canada’s pension system as an instructive parallel. The Canada Pension Plan’s allocation to alternatives has grown from roughly 20 per cent before the global financial crisis to 60 per cent today.
“One of the world’s largest and most sophisticated institutional managers who manage all our pensions has recognized that this is important. Not only from a concentration perspective, but more importantly, from a diversification perspective,” he said.
To that end, he believes most investors are still building portfolios for a pre-2022 world — one where inflation was low and a simple equity-bond split provided adequate protection. That environment no longer exists, and he expects the current inflation dynamic to persist.
AI exposure spreads across asset classes
The concentration problem runs deeper than the headline numbers suggest, particularly as the top 10 names in the S&P 500 now make up 41 per cent of the index, a figure that has climbed every year for the past three.
But Nia argues even that understates the real exposure. The AI investment theme has spilled into sectors not traditionally associated with technology - utilities benefiting from data centre power demand, commodity producers supplying the copper and materials for buildouts. When those secondary effects are factored in, the true concentration is likely well above 41 per cent, he said.
Meanwhile, international equities offer less shelter than investors might assume. The MSCI World Index is now roughly 70 per cent US, which he cites is a record high, meaning both domestic and global equity allocations carry heavy AI exposure.
The issue has also crossed into fixed income, Nia noted, adding companies are tapping debt markets to fund data centre construction, and by the end of next year, estimates suggest nearly 20 per cent of the US investment-grade credit index will be tied to hyperscalers or AI-related themes.
For a traditional 60/40 portfolio, AI concentration now sits on both sides of the ledger, across equities and bonds and across regions.
Rather than trying to call the next market move, Nia favours preparation - building portfolios with multiple uncorrelated income streams so that no single downturn can derail a client’s financial plan.
“The one thing I’ve learned in investing is it’s impossible to predict. You’re much better off preparing,” he said.
The real-world concentration in a traditional 60/40 portfolio is likely far higher than most advisors or clients realize once secondary AI-linked industries and international equity overlap are factored in.
Meanwhile, those in drawdown phase rely on their portfolios for income, and a sharp sell-off doesn’t just hurt in the short term — it permanently reduces the base from which returns compound. Five or ten years later, that gap is difficult to recover.
Why standing still is the biggest portfolio risk
The knowledge gap, he acknowledges, exists at every level and it varies by registration category and individual willingness to adapt.
“Complacency is a killer for investment returns. You need to evolve,” said Nia, drawing a comparison to the evolution of Canadian portfolio construction over the past two decades, from domestic-only holdings to global allocations.
On the idea that alternatives are inherently more complex than other parts of a portfolio, Nia underscored how every financial product was unfamiliar once, and that unfamiliarity didn’t stop adoption when the product served a clear need.
“Alternatives have a reputation of being complex when in fact everything is complex,” he said. “It’s just about educating everyone in the ecosystem.”
According to Nia, investors who understand what alternatives do and why they matter are far more likely to integrate them. Given the concentration and diversification challenges now embedded in the traditional 60/40 framework, Nia sees the case as self-evident.
“Things that solve a problem regardless of the knowledge gap are more likely to be closed because it serves a purpose,” he said.
