The S&P 500 continues to push to fresh all-time highs, powered by one of the strongest earnings seasons in recent memory. Optimism is running high on Wall Street as technology leaders dominate headlines and investors lean heavily into growth. For wealth advisors, the question is no longer whether markets can sustain momentum—it’s how concentrated portfolios have become, and whether clients are adequately positioned for what comes next.
The Magnificent Seven—Nvidia, Microsoft, Alphabet, Apple, Amazon, Meta, and Tesla—remain the focal point of this rally. Nvidia in particular has driven extraordinary gains, and the group as a whole has pushed products like the Roundhill Magnificent Seven ETF up more than 32% over the past six months. Advisors working with growth-oriented clients have seen substantial portfolio appreciation from this concentration, but the reliance on a handful of megacaps raises new challenges for asset allocation.
Market enthusiasm is getting another tailwind with the Federal Reserve widely expected to cut interest rates in its next policy meeting. The anticipation of easier monetary policy has reignited risk appetite and further supported equity valuations. Yet the strength of the rally has some industry voices urging caution.
Sean O’Hara, president of PacerETFs, believes the market’s dependence on a few dominant stocks creates potential vulnerabilities. With $40 billion in assets under management, Pacer has benefited from exposure to the Magnificent Seven but is increasingly steering attention to overlooked areas of the market. For advisors guiding high-net-worth households and institutional clients, his perspective offers timely insight into how to balance growth with diversification.
Concentration Risk in Growth Indexes
O’Hara points to the Russell 1000 Growth Index as a prime example of the market’s imbalance. Out of 392 stocks in the benchmark, just seven account for 52% of its value. That leaves 385 companies making up less than half the index. In cap-weighted structures, the largest names dominate performance, limiting the diversification benefit that indexes are designed to provide.
For RIAs and family offices, this presents an allocation challenge. Clients may think they’re broadly invested in growth through index funds or ETFs, but in practice, much of their exposure is tied to the performance of a small cluster of stocks. If the Magnificent Seven falters—even temporarily—it could disproportionately impact portfolios that appear diversified on the surface.
O’Hara suggests that advisors consider shifting part of client portfolios away from cap-weighted structures. By overweighting companies that are systematically underrepresented in these indexes, advisors can enhance diversification while potentially capturing overlooked sources of alpha.
Opportunities Beyond the Magnificent Seven
While cautious on the largest names, O’Hara does not dismiss technology entirely. Instead, he highlights smaller-cap tech firms that have outpaced the performance of even Nvidia in recent months.
AppLovin and Ubiquiti, for example, have each surged more than 100% over the past six months. Their market caps may be small compared to the trillion-dollar giants, but their growth rates and product innovations suggest meaningful upside potential. For clients seeking growth with less exposure to over-owned megacaps, these types of companies can be attractive tactical additions.
Palantir and Palo Alto Networks also stand out as firms delivering strong performance outside of the Magnificent Seven. Palantir’s role in AI-driven analytics and government contracting has fueled renewed interest, while Palo Alto continues to benefit from rising global demand for cybersecurity solutions.
For advisors, the key takeaway is that the technology sector remains fertile ground, but broadening exposure beyond the obvious names may offer more balanced risk-return dynamics.
The Case for Healthcare
Beyond technology, O’Hara emphasizes healthcare as a sector with underappreciated potential. Historically, healthcare has carried greater weight in indexes than it does today, leaving the sector underrepresented in many portfolios. At a time when AI and biotechnology are reshaping drug development pipelines, healthcare companies may be poised for stronger growth.
“The industry can reduce drug development cycles with AI integration,” O’Hara notes, pointing to opportunities where innovation converges with efficiency. For RIAs, this presents a sector that combines defensive qualities with exposure to transformative growth themes. Adding healthcare allocations can help balance client portfolios while tapping into structural trends.
Small and Mid-Cap Leadership in a Rate-Cut Cycle
With rate cuts on the horizon, O’Hara sees potential leadership emerging from small and mid-cap equities. Smaller firms are typically more sensitive to borrowing costs, and a lower-rate environment could relieve pressure on balance sheets, improve financing conditions, and spur growth.
For advisors, this could be a timely area to revisit. Many high-net-worth portfolios remain underweight in small and mid-cap equities after years of underperformance relative to large caps. If the Fed follows through with rate cuts, a shift in market leadership could favor these under-owned areas.
That said, O’Hara cautions that not all small caps are created equal. Unprofitable companies may continue to face headwinds despite cheaper financing. Advisors will need to be selective, focusing on businesses with solid balance sheets, sustainable cash flows, and compelling growth prospects.
Balancing Client Portfolios in a Concentrated Market
The dilemma facing advisors today is how to reconcile client enthusiasm for megacap tech with prudent risk management. Clients see the performance of the Magnificent Seven and often want greater exposure, but fiduciary duty requires advisors to consider concentration risk and long-term portfolio resilience.
One approach is to blend exposure—maintaining allocations to dominant tech leaders while deliberately carving out space for underrepresented areas. This could mean overweighting select mid-cap tech firms, incorporating healthcare exposure, and building positions in small-cap equities poised to benefit from changing rate dynamics.
Another strategy is to explore alternative weighting methodologies in ETFs and index products. Equal-weight or factor-based strategies can help rebalance away from concentrated megacap exposure. For RIAs, these tools allow for tailored portfolio construction that both honors client demand for growth themes and mitigates overconcentration.
Key Considerations for RIAs
-
Communicate Concentration Risk – Clients may not realize how much of their “diversified” portfolios depend on seven companies. Educating them about index construction and allocation imbalances builds trust and sets realistic expectations.
-
Highlight Alternatives – By pointing to strong performers outside the Magnificent Seven, such as AppLovin, Ubiquiti, Palantir, and Palo Alto Networks, advisors can reframe the growth conversation.
-
Revisit Healthcare – With AI integration accelerating drug development, healthcare may regain leadership and provide uncorrelated growth opportunities.
-
Reassess Small and Mid-Caps – As rates decline, smaller firms may recover leadership. Careful selection is critical, but the opportunity set is broad.
-
Diversify Weighting Methodologies – Moving beyond pure cap weighting can enhance diversification and reduce portfolio vulnerabilities.
Positioning for the Next Market Phase
The market’s strong run has rewarded clients, but advisors know that periods of extreme concentration rarely last indefinitely. Whether through sector rotation, a shift in leadership, or unexpected macro shocks, the landscape will evolve. Advisors who anticipate these changes and position portfolios accordingly can differentiate their value proposition.
For RIAs, this moment calls for both strategic patience and tactical creativity. Maintaining exposure to megacap tech is sensible given their leadership role, but layering in complementary strategies across healthcare, mid-cap tech, and small caps can build more durable portfolios. Advisors who strike that balance will not only capture current opportunities but also help clients weather future volatility with greater confidence.
In short, the S&P 500’s record highs tell only part of the story. The real challenge—and opportunity—for advisors lies in guiding clients beyond the headline names toward a more resilient, thoughtfully diversified allocation strategy. By doing so, they can ensure that today’s gains translate into long-term wealth preservation and growth.
