Mag 7 to Lag 7: Potential risks of investing in major indices

Summary

Concentration surge: The Magnificent 7 grew from ~19% to over 41% of the S&P 500’s weight over the past decade.
2026 reversal: For the first time since 2022, all seven Mag 7 stocks underperformed the S&P 500, driven by AI spending concerns, small cap investment, and mean reversion.
Key takeaway: This shift reveals that S&P 500 ‘diversification’ is an illusion, potentially prompting renewed interest in equal weight alternatives.

For a large period of the last decade, one kind of exposure has worked more often than not: buy the largest tech names. Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla – the so called ‘Magnificent 7’ – outperformed the broader market, essentially becoming the market in the eyes of many.[1]

In 2015, the ten largest companies in the S&P 500 accounted for approximately 19% of the index’s total weight – which was already elevated compared to historical standards. That figure has since risen to a record 41% by the end of 2025, more than doubling in ten years.[2] And as of 25 June the ‘Mag 7’ make up roughly 32-33% of the S&P 500.[3] Perhaps, the starkest example of how this growth has exploded is Nvidia, going from less than 1% of the ‘Mag 7’ combined market cap in 2015, to more than 22% today.[4]

Source: MacroMicro. Data as of 06.07.2026. Past performance is not indicative of future performance. For illustrative purposes only.

Why have the Magnificent 7 stocks recently underperformed the S&P 500?

This year, that same trade has seen a reversal – at least for a while. Through the first half of 2026, all of the ‘Mag 7’ were, at various points, underperforming the S&P 500.[5] Furthermore, as of 06 June, CNBC’s Mag 7 index lags the broader S&P 500 by 9.3%.[6] [7] The fact that every member of the ‘Mag 7’ has traded down more than the index is a phenomenon that has not occurred since 2022.

The reasons for this vary from familiar to new: scepticism about the payback period on enormous AI infrastructure spending, rotation into small cap names, and simple mean reversion following three consecutive years of double-digit gains for the S&P 500.[8] While there has been a recovery in tech earnings since April, there has been a considerable amount of dispersion between the Mag 7 – Tesla has swung in both directions, while Microsoft and Meta have periodically lagged.[9]

The knock-on effect can be seen in an equally weighted index. The S&P 500 Equal Weight Index – the same 500 companies, but each given 0.2% instead of market size-based weight – has outpaced the traditional market cap weighted S&P 500 version over the long term.[10]

“The recent underperformance of the ‘Magnificent 7’ highlights how concentrated major indices have become – and why equal weighting has regained attention as an alternative approach.”

How concentrated is the S&P 500 and why does it matter?

It would be easy to assume that a broad index equals diversification. Technically, an S&P 500 fund does hold those 500 companies. However, when a third of invested capital is tied to seven correlated, AI. And headline-driven mega caps, this diversification is questionable. Several of the ‘Mag 7’ share the same customers, similar AI capex cycles, and increasingly, a similar investor narrative. If this narrative wobbles, as it has at previous points, the overall index is dragged even if other names are holding or even improving.

It is important to note that this idea goes both ways. Concentration is partly why many indices saw positive results from 2023 through 2025 – there is no upside of the ‘Mag 7’ without also inheriting the potential downside risk. There is nothing inherently wrong with owning mega cap tech; the issue is whether potential investors recognise how much of that concentration risk is baked into exposure that is thought of as the entire market.

Why does concentration risk matter for S&P 500 investors?

The ‘Mag 7 to Lag 7’ moment is a useful reminder that the label of broad markets like the S&P 500 or equivalent might be heavily reliant on a select few companies. Understanding this distinction is important and what is even more important is understanding the possible alternatives, such as equal weight.

How can one gain exposure to equal weighting?

The HAN-GINS Tech Megatrend Equal Weight UCITS ETF (ticker: ITEK) seeks to provide exposure to the disruptive technology companies that are changing the world.

The Tech Megatrends ETF provides equal weight exposure across ten sub-sectors:

Blockchain
Cloud computing
Cyber security
Future cars
Genomics
AI & robotics
Social media
Digital entertainment
Defence technology
Quantum computing

The ETF avoids overconcentration in larger stocks, for example FAANGs (Facebook, Apple, Amazon, Netflix, Google) by utilising a double diversification approach, allocating equal weight to each theme and the constituents within.

The constituents within the subthemes are not limited to one region or country, allowing for greater coverage and access to smaller companies to contribute to ITEK’s performance.

[1] https://www.investopedia.com/the-mag-7-in-charts-how-big-tech-dominates-the-market-11866473

[2] https://www.rbcwealthmanagement.com/en-us/insights/the-great-narrowing-sp-500-concentration

[3] https://www.fool.com/research/magnificent-seven-sp-500/

[4] Ibid

[5] https://www.nasdaq.com/articles/every-magnificent-seven-stock-underperforming-sp-500-2026-heres-one-buy-and-one-avoid

[6] https://www.cnbc.com/quotes/.MAG7

[7] https://uk.finance.yahoo.com/quote/%5EGSPC/

[8] https://elevatewealth.ae/blog/sp-500-three-consecutive-years-of-double-digit-returns/

[9] https://www.fool.com/research/magnificent-seven-sp-500/

[10] Source: Bloomberg. Annualised return between 1989 and 2023.

IMPORTANT INFORMATION This document is approved for professional use only.

Communications issued in the UK

The content in this document is issued by HANetf Limited (“HANetf”) and approved by Privium Fund Management (UK) Limited (“Privium”). HANetf is an appointed representative of Privium, which is authorised and regulated by the Financial Conduct Authority. The registered office of Privium is The Shard, 24th Floor, 32 London Bridge Street, London, SE1 9SG

This communication has been prepared for professional investors, but the exchange traded product (“ETCs”) and exchange traded fund (“ETFs”) set out in this communication (“Products”) may be available in some jurisdictions to any investors. Please check with your broker or intermediary that the relevant Product is available in your jurisdiction and suitable for your investment profile.

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Past performance is not a reliable indicator of future performance. The price of the Products may vary and they do not offer a fixed income. This document may contain forward looking statements including statements regarding our belief or current expectations with regards to the performance of certain assets classes. Forward looking statements are subject to certain risks, uncertainties and assumptions. There can be no assurance that such statements will be accurate and actual results could differ materially from those anticipated in such statements. Therefore, readers are cautioned not to place undue reliance on these forward-looking statements. The content of this document is for information purposes and for your internal use only, and does not constitute an investment advice, recommendation, investment research or an offer for sale nor a solicitation of an offer to buy any Product or make any investment.

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Frequently Asked Questions

What are the Magnificent 7 stocks and why are they important?

The Magnificent 7 refers to seven large US technology-related companies: Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta and Tesla. These companies have become increasingly influential within major US indices due to their significant market capitalisations and strong performance over the past decade. Their growing size means that movements in these companies can have a meaningful impact on broader market indices such as the S&P 500.

Is the S&P 500 as diversified as it appears?

The S&P 500 includes around 500 companies across multiple sectors, but it is weighted by market capitalisation, meaning the largest companies represent a larger share of the index. As a result, a relatively small number of large companies can have a significant influence on overall performance. Investors should consider not only the number of companies included in an index, but also how exposure is distributed across its constituents.

Why has there been increased interest in equal weighting strategies?

Interest in equal weighting strategies has grown as some investors have become more aware of increasing concentration within major market indices. When a small number of companies represent a large portion of an index, their performance can have a greater impact on overall returns. Equal weighting offers a different approach by distributing exposure more evenly across companies rather than concentrating it among the largest constituents.

What are the risks of investing in market-weighted indices?

Market-weighted indices can become increasingly concentrated when a small number of companies grow significantly larger than the rest of the market. This concentration can benefit investors when those companies perform strongly, but it can also increase exposure to declines if those companies underperform. Investors should consider the composition and concentration of an index alongside their investment objectives and risk tolerance.

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Mag 7 to Lag 7: What a tech stumble says about the potential risks of investing in major indices

Last updated: 13th July 2026 | Author: Cameron MacDonald

Summary

Why have the Magnificent 7 stocks recently underperformed the S&P 500?

﻿ “The recent underperformance of the ‘Magnificent 7’ highlights how concentrated major indices have become – and why equal weighting has regained attention as an alternative approach.”

How concentrated is the S&P 500 and why does it matter?

Why does concentration risk matter for S&P 500 investors?

How can one gain exposure to equal weighting?

Frequently Asked Questions

What are the Magnificent 7 stocks and why are they important?

Is the S&P 500 as diversified as it appears?

Why has there been increased interest in equal weighting strategies?

What are the risks of investing in market-weighted indices?

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“The recent underperformance of the ‘Magnificent 7’ highlights how concentrated major indices have become – and why equal weighting has regained attention as an alternative approach.”