The Magnificent Seven have fueled much of the stock market’s gains over the past several years, rewarding investors who have maintained exposure to mega-cap growth companies. However, that success has left many portfolios more concentrated than investors may realize.
Fortunately, investors don’t have to abandon technology to reduce concentration risk. ETFs make it easy to broaden diversification while maintaining meaningful exposure to long-term technology leaders. The Invesco S&P 500 Equal Weight ETF (RSP), Schwab U.S. Large-Cap Value ETF (SCHV), and Vanguard Dividend Appreciation ETF (VIG) each offer a different approach to broadening diversification while maintaining exposure to high-quality U.S. companies.
Together, these funds can help investors reduce reliance on any single stock, without the need to abandon long-term growth potential.
Why Concentration Risk Matters
In recent years, the Magnificent Seven stocks have performed exceptionally well, but their success has also created an unintended consequence: concentration risk.
As these companies stock prices have appreciated, their representation in broad market indexes has also increased, meaning investors who own broad index funds like the SPDR S&P 500 ETF (SPY) may have far more exposure to a handful of stocks than they realize.
In particular, this concentration can become a risk if leadership were to broaden to other areas of the market, something that we have already begun to see take place.
For investors, rather than trying to predict when this shift will take full effect, it is prudent to add complementary ETF exposure that can reduce reliance on mega-cap tech while also preserving long-term U.S. equity growth. The following funds can help achieve this goal.
Invesco S&P 500 Equal Weight ETF (RSP)
The Invesco S&P 500 Equal Weight ETF (RSP) offers investors exposure to the same 500 companies as the traditional S&P 500 Index, but with one main key difference. That is, equal weighting to each company regardless of market cap.
As a result, this significantly reduces overexposure to the Magnificent Seven, while increasing exposure to the other 493 index constituents.
The equal-weighting approach has historically performed well during periods of broader market participation, making RSP an attractive option for investors who want to stay invested in large-cap U.S. equities.
With an expense ratio of 0.20%, long-term cumulative returns are only slightly muted when compared to the underlying index. The 10-year cumulative total return for RSP of 202%, trails that of the S&P 500 by approximately 40% (or a difference in annualized returns of less than 2%).
Schwab U.S. Large-Cap Value ETF (SCHV)
The Schwab U.S. Large-Cap Value ETF (SCHV) takes a different approach. Rather than just relying on equal weighting, the fund shifts exposure toward attractively valued large-cap companies across sectors.
While the fund still holds select technology names, its value-oriented methodology results in less Mag-7 concentration.
With an expense ratio of just 0.04%, the fund currently trades at a price-to-earnings multiple of 17.12x and a price-to-book multiple of 3.02x. For comparison purposes, the SPDR S&P 500 ETF (SPY) currently trades at a price-to-earnings multiple of 21.04x and a price-to-book multiple of 4.61x.
SCHV provides a low-cost way to diversify away from a growth-heavy portfolio, while still maintaining exposure to established U.S. companies with durable valuation buffers.
Vanguard Dividend Appreciation ETF (VIG)
The Vanguard Dividend Appreciation ETF takes yet another approach, focusing on companies with financially strong businesses, durable cash flows, and consistent dividend growth.
While the fund retains exposure to leading technology stocks, it also broadens holdings across sectors including industrials, consumer staples, and healthcare. This emphasis on quality produces a well-diversified portfolio with a recent TTM dividend yield of 1.51%.
In Vanguard fashion, the fund comes with an ultra-low expense ratio of just 0.04%.
Which ETF is Best?
While there isn’t a one-size-fits-all answer to this question, it is important to note that the best ETF ultimately depends on each individual investor’s goals and risk tolerance.
For those looking to reduce concentration risk while maintaining exposure to the companies in the S&P 500, RSP is the most direct choice.
For investors seeking to balance both growth and value, SCHV offers strong diversification benefits.
Moreover, VIG is well suited for long-term investors who prioritize high-quality businesses that also have a history of growing their dividends.
While each fund takes a different approach, all three funds can help reduce reliance on the Magnificent Seven without completely abandoning exposure to long-term U.S. equity growth.
| ETF | Mag 7 Weight % | # of Holdings | Top 10 Holdings weight % | Largest Sector | Expense Ratio |
| RSP | ~2% | 509 | 2.73% | Industrials | 0.20% |
| SCHV | ~6-7% | 562 | 21.89% | Technology | 0.04% |
| VIG | ~11-12% | 340 | 31.87% | Technology | 0.04% |
| SPY | ~33% | 506 | 36.42% | Technology | 0.09% |
Final Verdict
The Magnificent Seven continue to be some of the strongest long-term businesses to own; however, that does not mean that investors should allow them to overpower their portfolio.
These three ETFs offer simple, low-cost ways to reduce concentration risk while maintaining exposure to long-term U.S. equity growth.
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