The question worth asking: am I actually diversified?
Diversification isn't about the length of your holdings list. It's about how independent those holdings are. Two portfolios can each hold fifteen securities: one spread across genuinely different economic drivers, the other piled — perhaps unintentionally — into the same handful of bets. On paper they look equally diversified. In a downturn, they behave nothing alike.
Two kinds of concentration
Direct concentration
How much of your portfolio sits in your largest individual holdings. If your top three holdings are 60% of the portfolio, most of your outcome rides on those three — regardless of how many smaller names fill the rest.
Economic concentration
How much of your portfolio is exposed to the same underlying economic drivers, even when those exposures turn up across different holdings. Several bank stocks, a bank-heavy index fund and a bank-heavy LIC can add up to a much narrower set of bets than the holdings list suggests.
Most tools only show you the first kind. The second is where portfolios quietly become fragile — and it's the reason a long, busy-looking holdings list can still be a concentrated one.
Why the number of stocks misleads you
A more honest measure than the ticker count is the effective number of holdings — a way of expressing how concentrated your portfolio weights are. It's the number of equally-weighted positions that would produce the same level of concentration, derived from how your weights are distributed (mathematically, one divided by the Herfindahl-Hirschman Index of those weights). It measures weight concentration — not whether your holdings are independent or move together. A fifteen-stock portfolio dominated by three large positions can have an effective number of holdings of only four or five.
There's no universal effective-number figure that defines a diversified portfolio. A higher effective number generally means portfolio weight is spread across more positions; a lower number means weight is more concentrated. What's appropriate depends entirely on your goals and circumstances.
A concrete example
Illustrative example — not a real portfolio
Imagine you own a broad Australian index fund, plus CBA, plus NAB, plus BHP. Four holdings — feels diversified. But a broad ASX fund is already roughly a quarter big banks and heavily weighted to a few large miners. Adding CBA, NAB and BHP on top stacks more of the same exposure. Economically, much of this "four-holding" portfolio comes down to a much narrower set of economic exposures — Australian banks and resources, and the forces behind them, like interest rates and Chinese demand.
The holdings list says four names. The exposure says something much narrower. That difference is exactly what a concentration analysis is for.
What PortLens actually analyses
- Your top-3 and top-5 concentration — how much of the portfolio your largest positions represent.
- Your effective number of holdings — a measure of how concentrated your portfolio weights are, beyond the raw ticker count.
- Your major economic bets — how many distinct drivers (banks, iron ore, China, rates, currency) actually move your portfolio.
- Where seemingly different holdings share the same underlying exposure.
It describes what your portfolio looks like — it doesn't grade it, and it never tells you what to buy or sell. The goal is understanding, so any decision you make is a more informed one.
Methodology & limitations
- • Concentration is measured from the weights of your holdings; the effective number of holdings uses a standard HHI-based calculation.
- • For funds and ETFs, PortLens uses look-through estimates of economic exposure — not a full constituent-by-constituent holdings list. These are approximations and are labelled as estimates.
- • Prices are end-of-day (daily) market data, not real-time.
- • There is no single "dangerous" concentration threshold — appropriate concentration depends on your goals, timeframe and circumstances.
- • PortLens provides general information and portfolio analysis only. It is not personal financial advice or a recommendation to buy or sell.
See whether this applies to your portfolio
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