That diversification is a bit of a smoke-screen though. The most popular index funds are cap-weighted. This causes the allocation of capital within the fund to become increasingly dominated by those few winner-take-all companies.
When index funds grow to huge levels of assets under management, their own asset allocations come to make up a significant portion of the market cap of the stocks in the portfolio. Thus the cap-weighted investment strategy becomes a self-fulfilling prophecy.
When index funds grow to huge levels of assets under management, their own asset allocations come to make up a significant portion of the market cap of the stocks in the portfolio. Thus the cap-weighted investment strategy becomes a self-fulfilling prophecy.