As we approach 2026, investors find themselves in a period marked by historically high concentration within the S&P 500 Index, with dominant performance from a select group of mega-cap technology and AI-related companies.
This trend is prompting more investment managers to recommend that clients, during their annual portfolio reviews, explore wider opportunities within the U.S. market as well as value and international stocks.
Nick Ryder, Chief Investment Officer of Kathmere Capital Management, emphasized this point on CNBC's "ETF Edge." He highlighted the importance of building resilience into portfolios through diversification.
"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," Ryder stated.
Ryder expressed concerns about the high concentration in the "Magnificent 7" stocks, which currently constitute around 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," he added.
Ryder's perspective is shared by other experts in the field. Ed Yardeni, President of Yardeni Research, advised investors to adopt a strategy that underweights the "Mag 7" and overweights the "Impressive 493," referencing the remaining 493 stocks in the S&P 500, during a recent "Squawk Box" interview.