Investment managers are issuing strong warnings as the U.S. stock market enters 2026 with historically high concentration in a handful of mega-cap technology and AI-related companies. With the so-called "Magnificent Seven" stocks comprising roughly 35% of the S&P 500, advisors are urging clients to use annual portfolio reviews to deliberately broaden their holdings across market segments, styles, and geographies to build resilience.

"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," said Nick Ryder, chief investment officer at Kathmere Capital Management. He expressed concern that many investors remain overly exposed to the mega-cap growth segment that has driven recent market returns, advising a strategic rebalancing into other areas of the U.S. market and international equities.

Strategic Shifts: Equal-Weight, Value, and International Exposure
To mitigate single-stock risk while maintaining U.S. exposure, advisors point to equal-weight S&P 500 ETFs, such as the Goldman Sachs Equal Weight U.S. Large Cap Equity ETF (GSEW), which inherently reduces the oversized influence of the top holdings. However, investor behavior shows a stark preference for market-cap-weighted funds, with the Vanguard S&P 500 ETF (VOO) attracting roughly $120 billion in flows this year compared to GSEW's $397 million.

Beyond equal-weight strategies, Ryder highlights the renewed case for value investing. While 2025 saw strong performance from both growth and value, he believes value stocks—both in the U.S. and internationally—still offer significant appreciation potential as valuations revert to historical means. "The discounts on value stocks are pretty significant relative to history," Ryder noted, pointing to the iShares MSCI Intl Value Factor ETF (IVLU), which is up approximately 44% year-to-date. He suggests funds like the Vanguard Value ETF (VTV) for targeted exposure to cheaper stocks within each sector without making a concentrated sector bet.

A Call for Deliberate Rebalancing in a Top-Heavy Market
The consensus among strategists, including Ed Yardeni of Yardeni Research who advises being "underweight the Mag 7" and "overweight the Impressive 493," is that the current market setup warrants a proactive diversification check. The extraordinary run of mega-cap growth has created a lopsided market where portfolio risk may be unintentionally elevated. For investors, the annual review presents a critical opportunity to assess concentration, rebalance into underrepresented areas like international and domestic value stocks, and construct portfolios that are positioned to withstand potential shifts in market leadership.