Investors are at risk of suffering huge losses by blindly investing in highly-concentrated equity indices, according to Invesco chief executive Martin Flanagan.
According to the Financial Times, Flanagan (pictured) said relying on indices that weight stocks by market value could inflate losses if stockmarkets dip.
'Cap-weighted' indices, such as the S&P 500, direct investors' money to the largest companies and stocks with the highest valuations.
The S&P 500, for example, is dominated by technology companies with Apple, Alphabet, Microsoft, Facebook and Amazon making up 11.7% of the index.
Flanagan said investors labour under the misguided perception that these indices were "safe and cheap". The ten largest ETFs in the US have taken in near $65bn this year and all were weighted by market cap.
"Too many people have created their total portfolios with cap-weighted indexes thinking they are safe and cheap," the CEO said.
"The reality is they are turning more and more into momentum plays. You are ending up with a disproportionate amount of your portfolio in the biggest stocks.
"I am concerned about the financial impact to people who might not understand their exposures."
However, his claims were disputed by rival ETF providers, which claimed Flanagan's comments were "unfounded".
Matthew Bartolini, vice president at State Street Global Advisors, said: "The claims about concentration are really unfounded. You are definitely going to have a skew to the larger cap companies but you still have another 400 odd stocks that you have exposure to as well."
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