After the rise of the Magnificent Seven, investors are questioning how long the tech giants will drive performance.
Chris Mellor, head of EMEA ETF equity product management team at Invesco, said there were an increasing number of clients with concerns around the future performance of the Magnificent Seven, and how to position portfolios should they invest in these companies.
He said: “They still want to have exposure to the space and clearly it's a part of the market.
“But some investors would rather have it in a more contained or controlled way.”
In recent months, Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia and Tesla, have driven the S&P 500.
Mellor said taking an equal weighted approach could mitigate concentration of particular stocks in the market.
He said: “The advantage of equal weighting in terms of a thematic product is that it gives you a nice average across the performance of all the stocks, agnostic of whether they are large-cap, mid-cap or small-cap.
“If you don't know which ones are going to be the winners of a new technology or a new area of growth, taking an equally weighted bet is often quite a sensible approach to take.”
Mellor said an equal weight approach on the S&P 500 is an active decision as it moves away from the Magnificent Seven.
He added: “If you're an investor who is measured against a standard benchmark, you are taking a pretty active decision to go equal weight because it means you're taking a big underweight of the Magnificent Seven.
"Over the last year you won't have performed as well as the market cap weighted index because you haven't had that exposure to the Magnificent Seven.
“That said, it's a great place to be if you're concerned that that's going to reverse at some point.”
Mellor added that while in the short-term there can be less attractive performance, it could have benefits in the longer term.
In February, Chris Beauchamp, chief market analyst at IG Group said shifting investor focus has led to a change in performance among the Magnificent Seven.
He warned the days of speculative investing were waning and stressed the importance of looking at the strengths of individual companies.
"The days of speculative investment based on potential alone are waning, with investors demanding tangible results and clear paths to profitability," said Beauchamp.
tara.o'connor@ft.com
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