K
ey takeaways:

    Concentration is increasing: The top 10 holdings in the FTSE EPRA Nareit Developed Index have grown from around 20% to 33%, while the Diversification Factor has dropped from 120 to 60, indicating reduced effective breadth.

    Target Diversification restores balance: By applying targets of 100/150/200, the Diversification Factor is boosted back to 100-200, US exposure is reduced to 46%, and tracking error remains low at around 0.6%.

    Stronger performance: A 20-year back-test shows higher cumulative returns, slightly lower volatility, and a dividend yield increase of around 40bps.

    Points of differentiation:

    * First study to apply FTSE Russell's Target Diversification model

    * Pure rules-based approach that adjusts weights directly without caps or optimisation

    * Customisable risk and yield through multiple targets, allowing investors to fine-tune exposure and regulatory alignment

    What does our research mean for investors?

    Our findings show that rising concentration no longer needs to compromise benchmark fidelity. Target Diversification offers a scalable, rules-based solution to rebalance portfolios, enhance income, and modestly improve risk-adjusted returns while preserving liquidity.