There aren’t many must-reads in the investment world, but UBS’ Global Investment Returns Yearbook is one of them. Compiled by academics at London Business School and Cambridge University, the annual report digs into long-term market trends, often challenging conventional thinking.
The 2025 edition, released on Tuesday, highlights one of the most pressing risks in markets today: market concentration in the US is at a 92-year high. Just ten stocks now account for 35 percent of total US market capitalization, a level of dominance that raises fundamental questions about portfolio risk, recovery times after a downturn, and the shifting nature of market leadership.
Against that backdrop, this year’s edition has a special focus on diversification, especially among stocks. When it comes to asset allocation, the high level of concentration warrants careful consideration, UBS said.
Peak concentration: Not a sell signal, but a warning
«There is no reliable way of identifying whether a peak has been reached,” professor Elroy Dimson of Cambridge University, a co-author of the Yearbook, told Investment Officer. “Peak concentration is not necessarily a sell signal. But it’s interesting to look at recovery times after a stock market peak.”
Dimson’s point is telling. Investors may not be able to time when today’s market leaders falter, but history is clear: when market downturns are tied to extreme concentration, recoveries can be slow and painful.
Post-crash recoveries in the US equity market
Source: UBS Global Investment Returns Yearbook.
The dot-com bubble in 2000 and Japan’s market collapse in 1989 are two prime examples. Both triggered decades of stagnation, not because of a cyclical correction, but because they marked the end of an era for the dominant sectors. With mega-cap technology stocks now controlling an unprecedented share of the US market, the risk of a similar structural shift is real.
Growing risks of overreliance on market leaders
Beyond historical parallels, investors today face unique risks that could exacerbate the impact of a market downturn.
First is valuation risk. Tech megacaps—the so-called Magnificent Seven—trade at lofty multiples, making them vulnerable to even small shifts in investor sentiment.
Second is policy risk. With Donald Trump’s return to the White House, the regulatory landscape for big tech is shifting. While Trump has previously attacked tech firms over censorship, his administration is now expected to ease regulations and create a more business-friendly environment. That could mean lower antitrust pressure, allowing dominant firms to consolidate their power further—but it could also mean a riskier environment for investors if valuations rise unchecked.
Meanwhile, Europe is developing its own approach. The EU has proposed easing regulatory burdens on businesses, potentially weakening the Digital Markets Act. At the same time, it is expected to become more critical towards US-based tech firms. A combination of a friendlier US policy environment and lighter European regulation could further concentrate market leadership, setting the stage for an even more severe downturn if sentiment shifts.
Why some crashes take longer to recover from
One of the most important lessons from the Yearbook is that not all crashes are equal. The speed of recovery often depends on policy response—and that tool may be more limited in the next crisis.
The Great Financial Crisis (2008) saw a relatively quick rebound, thanks to massive central bank intervention. But if the next downturn occurs in a high-inflation, high-rate environment, policymakers may have fewer options to stimulate growth, delaying a return to previous highs.
Valuation-driven crashes—like those seen in 2000 and 1929—tend to drag out recoveries. Investors who expect a quick rebound may instead face a lost decade, as markets take years to rebuild confidence and reprice assets.
Diversification remains the only free lunch in investing
If there is one lesson from past crashes, it’s that diversification pays off, the UBS Yearbook argues. The best-performing stocks of one cycle are rarely the winners of the next. Investors who were overexposed to dot-com stocks in 2000 or Japanese equities in 1989 spent years—if not decades—waiting for a recovery.
It has been 25 years since the first edition of the Yearbook. Equity returns in the 21st century have been lower than in the 20th century, while bonds have delivered stronger performance. However, stocks have still outpaced inflation, bonds, and cash over the long run.
«Global stocks provided an annualized real return of 3.5 percent and a 4.3 percent equity premium versus cash,» said professor Paul Marsch of London Business School, co-author along with his colleague Mike Staunton. «The ‹law› of risk and return continued to hold in the 21st century.»
That rule remains in force today. Peak market concentration is not a guarantee of an imminent crash, but it does signal heightened risk. According to the Yearbook, history suggests that those who fail to diversify beyond today’s dominant stocks may find themselves caught in a prolonged downturn.