# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Portfolio Concentration

Portfolio Concentration measures the idiosyncratic (non-market) risk taken on by an ETF. Since an efficient market does not compensate higher idiosyncratic risk with higher returns, a lower portfolio concentration is better for investors seeking to avoid security-specific and sector-specific risks. Investors looking to make a tactical call on a specific industry or sector might seek higher concentration, as that suggests an ETF's portfolio has higher exposure to sector-specific return factors.

This measure only currently applies to U.S. equity, international equity, and fixed-income ETFs, as those three broad asset classes have diversified return factors generally agreed upon in the academic finance literature. Equity ETFs use proxies for U.S. or global market, size, and value risk factors to separate diversified, systemic portfolio risk from idiosyncratic risk. Fixed-income ETFs use proxies for market (aggregate), credit, and duration risk factors to separate diversified, systemic portfolio risk from idiosyncratic risk.

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