Staying diverse in a market that rewards concentration

The last six months has seen a deliberate rebalancing at Sterling Private Wealth. Ben Tonc, investment analyst at the firm, describes a portfolio shift that has moved meaningfully away from Australian equities and toward a broader global opportunity set.

Mid and small caps, emerging markets, private equity. The direction is clear.

“Our portfolios have shifted significantly underweight Australia over the past six months, to overweight international equities,” Tonc says.

The rationale is not hostility to the domestic market but recognition of its limits. The Australian equity universe offers a narrow base for long-term growth, and the current moment presents enough global opportunity to justify a more aggressive tilt elsewhere.

Managing the US problem

The concentration risk embedded in a standard passive global allocation is something Tonc watches carefully.

A benchmark-weighted position in global equities places a substantial majority of capital in US stocks, and within that, a significant share in a small group of mega-cap names. The diversification story breaks down quickly under scrutiny.

“We are trying to stay as diverse as possible,” he says. The practical response has been to introduce a specialist manager for European exposure and to use satellite allocations to access emerging markets, keeping the overall portfolio from becoming over-concentrated in the same pool of US companies that dominate passive strategies.

On AI specifically, Tonc’s approach has been to hold the exposure that comes naturally through the benchmark rather than actively building more on top.

“We want to be exposed to it and given that the benchmark carries substantial AI exposure already, we are not overweight in comparison. We just naturally have that exposure.”

That is a considered position: enough concentration in the theme to participate, not so much that the portfolio becomes a single factor bet.

Active where it counts

Sterling’s active-passive balance leans toward systematic and quantitative strategies for the active component, rather than concentrated high-conviction funds.

Passive exposure handles equity beta and US large-cap access. The main active allocation comes from systematic managers with long track records and demonstrated net outperformance over time.

“We have minimised our concentrated high-conviction strategies. We are trying to stay more diverse in the current climate where AI winners and losers are hard to pick and swings are volatile.”

That caution reflects a broader view: in an environment where a single earnings disappointment from a mega-cap can move the index, strategies that spread risk more evenly offer meaningful protection.

On currency, Sterling has been making adjustments. Hedging has increased substantially over the past several months, from around 20 per cent to approximately 50 per cent of global equity exposure.

The driver is a view that the US dollar remains overvalued, and that a gradual decline creates a headwind for unhedged international positions.

“We will likely keep our portfolios around 50 to 60 per cent hedged, or higher, until we see the US dollar and Australian dollar relationship shift,” Tonc says.

The firm has also leaned toward managers with dynamic hedging capabilities, giving the portfolio flexibility as the currency picture evolves.