Index concentration

Index concentration refers to how much of a market index's total value is driven by just a handful of its largest constituent companies. An index is described as top heavy when a small number of mega-cap stocks make up a disproportionately large share of the whole index's weight.

This is a different concept from concentration risk, which applies to a single company relying too heavily on one customer or revenue source. Index concentration means an investor who thinks they are broadly diversified by owning an index fund may actually have outsized exposure to the performance of just a few giant companies within it.