Diversify Your Magnificent 7 Holdings
Is your portfolio dominated by concentrated Mag 7 holdings?
Let’s discuss how to navigate. Owning stocks of different cap sizes and industry compositions provides healthy diversification. Specifically, consider diversifying concentrated positions into Mid-cap investments. By deploying capital into quality, cash-flowing Mid-caps, you should expect your portfolio to achieve superior risk-adjusted returns.
Making the Case for Mid-Cap Investments
- Recent S&P500 Index concentration is a serious caution flag, as market-cap weighted indexes can be flawed. The Top 10 stocks in the S&P500 represent 36% of the entire index¹.
- Valuation multiples of Mid-caps are materially lower (cheaper) on an absolute basis and on a historical basis.
- Meanwhile, the relative earnings growth of mid-caps may exceed large caps in 2H25.
- Objectively, Mid-caps stocks and large-cap stocks have each had alternating periods of relative outperformance dating back decades. Expect more of the same.
- U.S. Mid-caps, taken as a whole, have less international exposure than large multinationals. A forward-looking view of global trade may indicate more domestic exposure is preferred.
- Perhaps most important, Mid-caps are sometimes underfollowed. Through skillful analysis & rigorous due diligence, active stock selection is likely to produce better returns over time.
If you’re sitting on a concentrated position in a Magnificent Seven stock, it may be worth considering a pivot towards thoughtful diversification. These stocks have performed extremely well over the past 10 years – it may be worth ‘Declaring Victory!!’
Written By Bill J. Tuebo, CFA
¹ Source – J.P. Morgan, Guide to the Markets
The information provided in this article is for informational purposes only and does not constitute financial advice. While the insights and opinions expressed are based on professional experience and current market knowledge, they are not a guarantee of future performance. Readers should consult with a qualified financial advisor to discuss their specific investment needs and objectives before making any investment decisions. The information contained in this article has not been filed with, reviewed by or approved by the SEC or any other United States regulatory or self-regulatory authority.
