Investors all-in on Mag 7 stocks face weighty market decision in 2026
Investors face a period of historically high concentration. S&P 500 Index It entered 2026 with a small number of mega-cap technology and AI-related companies dominating the index’s performance and risk.
This is leading to more investment managers advising clients to pay closer attention to opportunities to expand holdings in the U.S. market and across both value and overseas equities as part of the annual portfolio review process.
“The big theme for us is making sure we have flexibility in the portfolio, and diversification is the way we’re going to go about that,” Kathmere Capital CIO Nick Ruder said Monday on CNBC’s “ETF Edge.”
He expressed concern that investors were too focused on the “Magnificent 7” stocks, which currently account for about 35% of the U.S. major stock market index.
“It’s been a great ride for these companies, but let’s make sure portfolios are adequately diversified outside of the mega-cap growth segment, but also outside of U.S. equities,” Ruder said.
He’s not the only one advising investors to move away from Mag 7.
Ed Yardeni, president of Yardeni Research, said during a “Squawk Box” interview earlier this week that investors should be underweight Mag 7 but overweight “Impressive 493.”
He was referring to the remaining 493 S&P 500 stocks.
Magnificent Seven shares year-to-date against the Vanguard Value Index ETF.
On the “ETF Edge” podcast episode of Monday’s show, Ruder pointed out that multiple equally weighted S&P 500 ETFs are a good way to stay invested in the U.S. market but reduce the risk of concentration in the largest holdings.
Goldman Sachs Equal-Weight U.S. Large Stock ETF (GSEW) is an example. The fund has received an inflow of $397 million since the beginning of the year. ETF.com. To put this in perspective, the market-weighted Vanguard S&P 500 ETF (VOO) has received an estimated $120 billion from investors this year.
Ruder said 2025 is a rare year in which both momentum stocks and value stocks perform very well, but he believes owning value stocks is the more important factor as stock prices revert back to the mean over the long term, and he said there is still significant room for value stocks to appreciate.
Ruder said another option to consider for diversification in the U.S. large-cap space is a value fund like the Vanguard Value ETF (VTV).
“I don’t want to get into sector bets, but I just want to own cheaper stocks in each sector,” he said.
However, Ruder emphasized that domestically biased investors should also be aware that they are missing out on big gains from value stocks abroad this year.
“Non-U.S. value increased [around] “This year it’s 40 percent,” he said.
The iShares MSCI International Value Factor ETF (IVLU) is up nearly 44% year-to-date through Thursday.
Despite these gains, Ruder believes many value stocks remain underpriced. “Discounts on value stocks are quite significant compared to the past,” he said. “The axiomatic value of this is cheaper than the market, but sometimes even more than normal, and we are in one of those times,” he added.
