Why Your ETFs Might Be Less Diversified Than You Think

TLDR: In January 2026, Barloworld was delisted from the JSE after 86 years. It wasn't alone. The exchange has lost nearly half its listed companies in two decades, with roughly 100 delistings in the past five years alone. For South African investors with money in ETFs and pension funds, this creates a problem that gets too little attention: concentration risk. Your "diversified" portfolio might be less diversified than you think.

In January 2026, Barloworld was delisted from the Johannesburg Stock Exchange after 86 years as a public company. The industrial giant, acquired by a Saudi-led consortium for R23 billion, simply decided that life as a private company made more sense.

Barloworld wasn't making headlines for financial distress. It chose to leave. And it wasn't alone.

MultiChoice was acquired by France's Canal+ for R56 billion. Adcock Ingram was bought by India's Natco Pharma. Mediclinic was acquired by Remgro and MSC. Distell was taken over by Heineken. Pioneer Foods, swallowed by PepsiCo. Massmart was taken private by Walmart. The list goes on.

Over the past five years, roughly 100 companies have delisted from the JSE. That's an average of about 20 per year leaving, against a trickle of new listings coming in.

The JSE once had around 600 listed companies. By the end of 2023, that number was 284. Africa's oldest and largest stock exchange has effectively halved.

If you hold SA equity ETFs, invest through a retirement annuity, or have a pension fund, this matters. Because the "diversification" that these products offer depends on having a wide range of companies to invest in. When that range shrinks, concentration goes up. And concentration is a risk most retail investors don't think about enough.

What's happening to the JSE?

Companies are leaving the exchange for several reasons, and understanding them helps explain why this isn't likely to reverse soon.

Foreign acquisitions. Global companies are buying South African businesses and taking them private. Heineken bought Distell. PepsiCo took over Pioneer Foods. Walmart absorbed Massmart. Canal+ acquired MultiChoice. These are profitable, well-run businesses being removed from the exchange by international buyers who don't need a JSE listing.

The cost of being listed. A public listing costs money: compliance, continuous disclosure, legal fees, board governance, and the sheer management time consumed by analyst calls, shareholder meetings, and regulatory reporting. For smaller companies, these costs can outweigh any benefit that listing provides.

Barloworld's CEO Dominic Sewela said as much. The decision to go private was partly driven by wanting to escape the short-term pressures and high costs of public markets.

Slow economic growth. South Africa's GDP growth has been stubbornly low for years. The IMF projects just 1.4% in growth for 2026. In that environment, fewer companies grow to the size where a public listing makes sense. The pipeline of new listings doesn't replace what's being lost.

Private equity is growing. According to the South African Venture Capital Association (SAVCA), the private equity industry in South Africa manages R237 billion. Companies can raise capital privately without ever going to the trouble of listing. For many, it's the easier path.

New listings do happen, however. Boxer raised R8.5 billion in its November 2024 IPO. WeBuyCars listed in April 2024. Cell C came to market in 2025. But these arrivals haven't been enough to offset the departures.

The net direction is clear: the JSE is getting smaller.

Why concentration matters

When an exchange loses companies, the remaining ones take up a larger share of every index that tracks it.

Here's what the JSE looks like today in terms of concentration:

The top five stocks in the Capped SWIX (which was one of the most commonly used institutional benchmarks before its termination at the end of 2025) made up over 31% of the index. Naspers alone accounted for roughly 9%. Gold Fields, AngloGold Ashanti, FirstRand, and Standard Bank rounded out the top five.

In sector terms, about a third of the JSE Top 40 sits in basic materials and mining. Another quarter is in financials. And a big chunk is in technology and media, dominated by the Naspers and Prosus combination.

So if you own a JSE-tracking ETF, here's what your "diversified" South African equity exposure actually looks like: heavy on mining, heavy on banks, and very heavy on one technology holding company with most of its value tied to a single Chinese tech firm.

That's not nothing. But it's also not the broad economic exposure most people assume they're getting when they buy "the market."

The pension fund problem

This concentration hits especially hard if you have a pension fund or retirement annuity.

Regulation 28 of the Pension Funds Act sets limits on how retirement funds can invest. The offshore limit was raised to 45% in 2023, but that still means more than half of retirement fund assets must be in South African investments. And for the local equity portion, pension fund managers are picking from an ever-shrinking pool.

A Sasfin analysis put numbers to the problem. In September 2017, the correlations between different local equity managers ranged from 0.20 to 0.44. Different managers were making genuinely different calls, building different portfolios. By September 2023, those correlations had risen to 0.45 to 0.83.

In plain language: fund managers who are supposed to give you differentiated returns are all buying the same stocks. Not because they've all lost their creativity, but because there simply aren't enough liquid, investable companies left on the JSE to build truly different portfolios.

Johan Gouws, head of advice at Sasfin Asset Consulting, has flagged this directly: "As the stock universe shrinks, concentration risk increases while the ability of local equity managers to diversify and generate consistent returns is diminished."

So your pension fund might hold four or five different equity managers, and you might feel good about that diversification. But if they're all concentrated in the same 30 to 40 companies, the diversification is more cosmetic than real.

It's not just a South African problem

Before you conclude this is uniquely a JSE issue, it's worth noting that public markets are shrinking globally.

In the United States, the number of listed companies has declined by about 35% over the past few decades. The S&P 500 has its own extreme concentration: the largest seven companies (the so-called "Magnificent Seven": Apple, Microsoft, Amazon, Alphabet, Meta, NVIDIA, and Tesla) now account for 35-40% of the entire index.

In 2025, roughly 42% of the S&P 500's total return came from those seven stocks alone.

So a South African investor who holds both a JSE Top 40 ETF and an S&P 500 ETF (a common combination) is heavily concentrated in both markets. Locally, they're exposed to Naspers, gold miners, and banks. Offshore, they're exposed to US tech giants. Two "diversified" ETFs, and you're really making two big bets.

This doesn't mean ETFs are bad. It means that understanding what's inside them matters. And it means that real diversification might require looking beyond what stock exchanges offer.

Where are all these companies going?

Here's the part that doesn't get discussed enough: when companies leave the JSE, they don't disappear. They go private.

Barloworld is still operating its equipment and logistics businesses. It's still generating revenue and profits. It's just doing it as a private company. The same is true for Distell (now part of Heineken's global operations), Pioneer Foods (part of PepsiCo), and Massmart (part of Walmart).

These businesses left public markets, but they still exist in private markets.

And this is a broader trend. Globally, the number of private companies has grown by 43% while public markets have contracted. More than 87% of companies with revenues over $100 million are privately held.

Put simply: if you only invest in listed companies, you're seeing less and less of the economy. The public markets window into the business world is narrowing while the private markets universe is growing.

We wrote about this dynamic in our post on why adding private markets to your portfolio makes sense. But the JSE's shrinkage makes the point sharper and more local. This isn't just a theoretical argument about global allocation models. It's happening here, with companies South Africans know and have invested in for decades.

What this means for your portfolio

If you're a South African investor with money in ETFs or a pension fund, the shrinking JSE creates a few practical considerations:

Your local equity exposure is more concentrated than it used to be. If you haven't reviewed what's inside your South African ETFs recently, it's worth doing. You might find that a few companies and sectors dominate your "diversified" holding more than you'd expect.

Multiple fund managers doesn't necessarily mean diversification. Having your pension spread across several equity managers sounds reassuring. But if those managers are all picking from the same shrinking pool, the actual diversification benefit is limited. Ask your fund about the overlap between their managers' holdings.

Offshore doesn't automatically solve the problem. Moving more money into international ETFs can help, but not if those ETFs have their own concentration issues. An S&P 500 tracker with 35 to 40% in seven stocks has its own risks.

Private markets are worth understanding. We're not saying you should move your pension into alternatives. But the universe of private companies is growing while the universe of public companies is shrinking. That's not a blip; it's the direction of travel. Understanding what private credit, private equity, and asset-backed finance look like as asset classes matters more than it used to.

Regulation 28 gives pension funds room. The current rules allow up to 15% in private equity and have dedicated infrastructure allocation limits. These provisions exist precisely because regulators recognise that retirement funds need access beyond listed markets. Whether your specific fund uses that room is worth asking about.

The bottom line

The JSE has lost nearly half its listed companies in two decades. The departures include some of South Africa's best-known businesses, and the trend shows little sign of reversing.

For retail investors, this creates concentration risk that's easy to overlook. Your ETF has fewer companies in it. Your pension fund managers are buying more and more of the same stocks. And the gap between what's happening in the economy and what's available on the stock exchange keeps widening.

None of this means you should abandon listed investments. Stocks and ETFs are still core building blocks. But relying on them exclusively means fishing in a pond that's getting smaller every year.

The distinction that matters is between the listed economy and the whole economy. They used to be roughly the same thing. They aren't anymore. And for anyone thinking about where to put their money, that's worth sitting with.