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Correlations across equity asset classes are at their highest level in 20 years.  Why?  Diversification today is at the mercy of the tech mega caps.

The large U.S. technology firms dominate the S&P 500, Nasdaq and the MSCI World.  If the tech names go up, all of these indices tend to go up; the non-tech names have far less influence than they did in the past.

Are things going to change anytime soon?  Doubtful.  The tech mega caps are unlikely to go away, especially as we continue to migrate more and more to a digital economy.

We have to get used to this paradigm shift.  Portfolio construction should be adjusted to reflect the likely diminished diversification benefits going forward.

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