The “Magnificent Seven” refers to seven mega-cap U.S. technology and consumer companies—Apple, Microsoft, Alphabet (Google), Amazon, Meta Platforms, Nvidia, and Tesla—whose market capitalizations and performance have heavily influenced broad equity markets in recent years. These names have become central to discussions on market concentration and investment strategy due to their disproportionate impact on major indices and the challenges they pose for active investment managers.
A common initial question is, “How much exposure do I have to these companies?” In short, within a well-diversified portfolio, perhaps less than you think. Consider first that these stocks are categorized as large cap growth companies. If you look at how much of your portfolio consists of large cap holdings (value, growth and blend) likely, your overall weighting to large companies in general is only a percentage of your overall portfolio (when considering other macro-categories like cash, bonds and alternative investments and then further within equities, mid- and small-sized U.S. companies and international exposure).
After determining how much exposure you have to large cap growth holdings (and large cap blend as well as these names would be in the likes of an S&P 500 Index Fund or a broad-based large cap blend fund), the next step would be to analyze those funds to determine how much of their portfolio consists of the Magnificent Seven. There are portfolio analysis tools that can help with this, but without such technology consider the following generalizations: Large cap index funds must adhere to the composition of a particular index and as such, if these seven companies indeed make up a large percentage of said index (and they do – by late 2025, these seven stocks collectively represented roughly 36–37% of the S&P 500’s total market capitalization, meaning that more than one-third of a typical broad U.S. index fund’s exposure is tied to this small cohort), the index fund will be skewed in the direction of the seven stocks. Active managers are not bound to hold stocks in proportion to their market capitalizations; instead, they allocate based on fundamental research, valuation assessments, and risk tolerances. For an active manager, this can be good or bad – owning less of these names when they underperform will cause the active manager to outperform an index but being underweight the seven stocks when they perform well will cause the active manager to underperform the index.
Consider the following generic example:
- Overall Portfolio Allocation = 60% Equity and 40% Cash and Bonds
- Large Cap Blend/Growth Exposure as a Percentage of Equity = 25%
- Large Cap Blend/Growth Exposure as a Percentage of Overall Portfolio = 15% (60% X 25%)
- Large Cap Blend/Growth Exposure = 50% Active Managers / 50% Index Funds
- Magnificent Seven Exposure as a Percentage of Index Funds = 40%
- Magnificent Seven Exposure as a Percentage of Active Funds = 20%
Total Portfolio Exposure to Magnificent Seven = 4.5% (15% / 2 X 40% + 15%/2 X 20%)
While it may be initially concerning to think that seven companies are responsible for the success or failure of your portfolio, a diversified strategy helps ensure that this isn’t happening. Reach out to the Johnson team at at JohnsonTeam@monetagroup.com if you’d like to learn more about portfolio diversification or to learn more about our team: monetagroup.com/johnson/
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