Investors are facing a period of historic concentration in the S&P 500 heading into 2026, with a small number of very large technology and AI companies dominating the index’s performance and risk.
As a result, more and more investment managers are advising their clients to pay particular attention to opportunities to expand their holdings in both U.S. markets and value and international stocks as part of their annual portfolio review process.
“The big theme for us is making sure we build resilience into our portfolios, and the way we go about that is diversification,” Cashmere Capital CIO Nick Ruder told CNBC’s “ETF Edge” on Monday.
He expressed concern that investors remain too focused on the “Magnificent 7” stocks, which currently make up about 35% of the U.S. large-cap market index.
“It’s a great performance for these companies, but make sure your portfolio is well diversified outside of the large-cap growth segment and outside of U.S. equity companies,” Ruder said.
He’s not the only one advising investors to diversify away from Mag 7.
Ed Yardeni, president of Yardeni Research, said in an interview with Squawk Box earlier this week that investors should be underweight Mag7 and overweight Impressive 493.
He was referring to the remaining 493 stocks in the S&P 500.
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Year-to-date comparison of Magnificent Seven stocks and Vanguard Value Index ETF.
On Monday’s episode of the show’s “ETF Edge” podcast, Ruder pointed to a number of equal-weight S&P 500 ETFs as a good way to reduce concentration risk in top stocks while remaining invested in the U.S. market.
The Goldman Sachs Equal Weight U.S. Large-Cap ETF (GSEW) is one example. The fund has received $397 million in inflows since the beginning of the year, according to ETF.com. To put that in perspective, the market-weighted Vanguard S&P 500 ETF (VOO) has attracted an estimated $120 billion from investors this year.
Ruder said that while 2025 was a rare year in which both momentum and value stocks did very well, he believes owning value stocks is even more important over the long term as stocks experience mean reversion, and value stocks still have significant upside potential.
Ruder said another option to consider for diversification in the U.S. large-cap market is value funds, such as the Vanguard Value ETF (VTV).
“I don’t want to bet on sectors, I just want to own cheap stocks within each sector,” he said.
But Ruder emphasized that domestic-biased investors should also recognize that they are missing out on huge gains from overseas value stocks this year.
“Values outside the U.S. are rising.” [around] This year it’s 40%,” he said.
The iShares MSCI International Value Factor ETF (IVLU) is up nearly 44% year-to-date through Thursday.
Even with these gains, Ruder thinks many value stocks are still cheap. “The discount rate for value stocks is quite large relative to history,” he said. “Axiomatic values are lower than the market, but in some cases they can be even higher than normal, and we are currently in such a period,” he added.
