The Index Is Not a Portfolio: Auditing FTSE 100 Concentration in 2026

Passive investing in UK equities is frequently presented as the sober choice: buy the index, accept the average, stop guessing. That description is accurate as far as it goes, but it conceals a structural fact. The FTSE 100 is not an evenly spread basket of one hundred British businesses. It is a market-capitalisation-weighted aggregation in which the largest constituents command a share of the index — and therefore of every tracker pound — far out of proportion to their number. In 2026, that arithmetic deserves a formal audit rather than a passing nod.

A Weighted Average, Not a Spread

The FTSE 100 weights each company by its investable market value, adjusted for free float. A company worth four times as much as another receives roughly four times the index weight. This is not a flaw; it is the design. It keeps turnover low, costs down and the index representative of where capital is actually deployed. Since the index began in 1984, cap weighting has been one of the cheapest ways to participate in UK large-cap equity returns.

The consequence, however, is that the index's behaviour is increasingly dictated by a small group. In recent years the ten largest constituents have accounted for a little under half of the index by weight, and the sector mix has tilted heavily towards energy, financials, pharmaceuticals and consumer staples. A £10,000 holding in a FTSE 100 tracker may therefore place close to £4,500 in ten names. The remaining ninety companies split the rest.

That is not a scandal. It is simply the difference between counting holdings and measuring risk.

Why One Hundred Holdings Flatters the Diversification Test

The headline count of constituents is a poor guide to the number of independent bets a portfolio contains. A more honest measure is the effective number of positions, which falls sharply as weight concentrates. When the top ten approach half the index, the effective count sits far below one hundred — closer, on some estimates, to the low forties. Two portfolios can both list a hundred lines and carry materially different concentration.

Sector concentration compounds the point. A FTSE 100 tracker is not a broad bet on UK domestic growth. Many of its largest companies earn the majority of their revenue overseas, and several of the biggest sit in sectors whose fortunes move together: oil and gas, banking, and defensive consumer names. Owning six mega-caps across three sectors is not the same as owning six independent risks.

The Overlaps Most Investors Never See

Concentration rarely announces itself in a single account. It accumulates through the plumbing of a diversified financial life.

• Fund-on-fund duplication. A UK tracker, a global tracker and an active UK equity fund can all hold the same handful of mega-caps. The global fund may hold them because they are among the largest listed companies in the world, not because they are British.
• Pension and wrapper overlap. A workplace default fund, a SIPP and an ISA may each contain a FTSE 100 or all-world exposure. Individually sensible; collectively repetitive.
• Employer exposure. Share schemes, options and deferred bonuses add single-stock risk that never appears on a broker statement.
• Investment trust gearing. A trust with a concentrated portfolio and borrowed money magnifies the same underlying names.

None of these is inherently wrong. The problem is that the aggregate exposure is usually invisible at the point of decision.

Running a Look-Through Audit

The exercise is less daunting than it sounds, and it can be completed with public documents.

1. Consolidate. List every equity and fund holding across all accounts, including pensions and share schemes, at current value.
2. Look through. For each fund, take the top ten holdings from the latest monthly factsheet. Where a fund publishes full holdings, use them; where it does not, treat the top ten as a floor and flag the gap.
3. Aggregate. Sum the value of each underlying company across all wrappers. Express it as a percentage of total investable assets, not of one account.
4. Compare. Set the result against the company's index weight and against your own stated limit. A common working ceiling is 5% to 7% for any single economic exposure, reviewed annually.
5. Stress the theme. Group holdings by revenue driver, not by listing venue. Two companies in different index sectors can share the same oil price, rate or currency sensitivity.

A simple spreadsheet is sufficient. The value lies in the aggregation, not the modelling.

The Active Manager's Version of the Same Problem

Active UK equity funds benchmarked to the FTSE 100 face a parallel constraint. Tracking-error limits encourage managers to hold the mega-caps as ballast, which means the top of an active portfolio can look remarkably like the top of the index. This is not necessarily closet tracking; it is position sizing under a benchmark. Investors comparing active and passive options should check active share and top-ten overlap rather than relying on the label on the fund fact sheet.

What Concentration Is Actually For

It is worth stating plainly that concentration is not a defect to be eliminated. Cap weighting reflects the real economy: the largest companies are large because markets have priced them that way. A concentrated index can be cheap, liquid and difficult to beat after costs. Many investors are better served by accepting the exposure knowingly than by paying for complexity to dilute it.

The failure mode is not concentration itself. It is unintended concentration — the belief that one owns a diversified portfolio when in fact one owns a leveraged bet on a dozen global franchises, repeated across three accounts and a pension.

Guardrails Rather Than Forecasts

A workable response does not require a view on which mega-cap will lead in 2026. It requires three disciplines: measure exposure across all accounts, set a ceiling and review it, and distinguish between adding a holding and adding a risk. Capped or equal-weighted alternatives exist, but they carry their own costs and tracking differences, and should be judged on total expense and turnover rather than on the appeal of the label.

The FTSE 100 remains a legitimate core holding for many UK investors. It is a starting point, however, not a finished portfolio. The index does the weighting; the investor still has to do the thinking.