Investors are facing a period of historically high concentration in the S&P 500 Index headed into 2026, with a small number of mega-cap technology and AI-related companies dominating the index’s performance and risk.
That’s leading more investment managers to advise clients as part of an annual portfolio review process to pay extra attention to opportunities to broaden holdings within the U.S. market, and across both value and overseas stocks.
“The big theme for us is making sure we have resiliency built into the portfolio and the way we are going about that is diversification,” Kathmere Capital CIO Nick Ruder said on CNBC’s “ETF Edge” on Monday.
He expressed concern that investors remain too concentrated in the “Magnificent 7” stocks, which currently make up about 35% of the U.S. large-cap stock market index.
“It has been an awesome run for these companies, but let’s just make sure the portfolios are sufficiently diversified outside the mega-cap growth segment, also outside of U.S. equity companies,” Ruder said.
He’s not alone in advising investors to diversify away from the Mag 7.
Ed Yardeni, Yardeni Research president, said investors should be underweight the Mag 7, but overweight the “Impressive 493” during a “Squawk Box” interview earlier this week.
He was referring to the remaining 493 S&P 500 stocks.
Magnificent Seven stocks year to date versus the Vanguard Value Index ETF.
During the “ETF Edge” podcast portion of Monday’s show, Ruder pointed to the many equal-weight S&P 500 ETFs as a good way to stay invested in the U.S. market but reduce the top holdings’ concentration risk.
The Goldman Sachs Equal Weight U.S. Large Cap Equity ETF (GSEW) is one example. The fund has attracted $397 million in flows since the beginning of the year, according to ETF.com. Though to put that into perspective, the market-weighted Vanguard S&P 500 ETF (VOO) has taken in an estimated $120 billion this year from investors.
Ruder said 2025 has been the rare year when both momentum stocks and value stocks have done very well, but he believes that over the longer-term, owning value stocks is the more important factor as stock prices experience reversion to the mean, and there is still considerable room for value stocks to appreciate, he said.
Within the U.S. large-cap space, another option to consider for diversification is a value fund, Ruder said, such as the Vanguard Value ETF (VTV).
“I don’t want to take a sector bet, but I just want to own the cheaper stocks within each sector,” he said.
But Ruder stressed that investors with a domestic bias should also be aware they have missed out on huge gains from value stocks overseas this year.
“Non-U.S. value is up [around] 40% this year,” he said.
The iShares MSCI Intl Value Factor ETF (IVLU) was up close to 44% year-to-date, through Thursday.
Ruder believes even with those gains, many value stocks remain underpriced. “The discounts on value stocks are pretty significant relative to history,” he said. “It’s axiomatic value is cheaper than the market, but sometimes it’s even more than normal, and we are at one of those times,” he added.
Source: https://www.cnbc.com/2025/12/12/stocks-market-risks-investors-portfolios-2026.html
