Did it pay off to reduce US concentration risk in 2025?

For some time now, a key risk for investors has been how increasingly concentrated the US stock market has become.

Seven companies, dubbed the “Magnificent Seven”, account for 35% of the market capitalisation of the S&P 500 index compared to around 12% a decade ago.

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

The influence of the US technology giants  – Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Nvidia (NASDAQ:NVDA), Alphabet (NASDAQ:GOOGL), Meta Platforms (NASDAQ:META), Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA) – has also been growing in global stock markets. Those seven stocks account for just under a quarter of the MSCI World Index.  

In a recent On The Money podcast episode, which discussed reasons for investors to be bullish and bearish in 2026, Richard Hunter, head of markets at interactive investor, said: “We’ve now started to hear the expression ‘the S&P 493’ as being a place to look.

“But as things currently stand, and despite a sort of lessening of the euphoria around the artificial intelligence (AI) trade, the fact remains that there are those seven companies, which have a disproportionate impact on the way the market tends to move.”

On the one hand, some commentators optimistically argue that the so-called Magnificent Seven, and indeed other AI-related businesses, could well deliver and justify their premium valuations amid elevated earnings expectations. However, others are cautious about the amount of leverage being used by businesses to fund AI development.

While the debate will no doubt rumble on, the good news for investors is that there are ways to reduce concentration risk. This article explains some of the options, and looks at whether it paid off to slim down exposure to the US technology giants in 2025.

• Investment outlook: expert opinion, analysis and ideas
• Reasons to be bearish and bullish in 2026
• Around the world in ETFs: different plays for the US and going global

S&P 500 index return

First, the scores on the doors for how the S&P 500 index fared. Despite a heavy slump earlier this year, the world’s most influential stock market delivered a return of 9.9% in 2025 (data to 9.9% and sourced from FE Analytics). Other markets fared better – including the UK’s FTSE 100 and FTSE All-Share indices – which were up 25% and 23.3%. All those returns are in pound sterling.

For a US investor, the returns will have been higher, with the S&P 500 up 18.5% in US dollar terms. The weakness in the US dollar versus the UK pound in 2025 blunted returns for UK investors. When owning assets that are priced in a foreign currency, if the value of the other currency falls versus pounds sterling, that means the value of your investment in pounds falls.

While the effect of this has been negative for UK investors in 2025, there will be times when the reverse is true. Moreover, for investors looking to buy US stocks, your UK pounds now go further than before.

• The US stocks you’ve been buying in 2025
• US stock market outlook 2026: about to get even more interesting

Equal-weight ETFs

The most obvious way to reduce concentration risk is to consider index funds and exchange-traded funds (ETFs) that track an equal-weighted index, which holds each company in equal proportion. For example, an equal-weighted FTSE 100 index would have a 1% weighting to each constituent.

One of the main benefits is that an equal-weighted ETF avoids being overexposed to stocks that have become overvalued or, worse still, potentially part of a bubble.

However, this approach has its critics, with some arguing that an equal weight ETF would still struggle in a general sell-off but miss out on substantial gains when the biggest stocks are doing well.

The jury appears to still be out, with equal-weight ETFs underperforming traditional S&P 500 trackers in 2025. For example, Invesco S&P 500 Equal Weight ETF (LSE:SPEX) returned 4% versus a 10% gain for the Vanguard S&P 500 UCITS ETF (LSE:VUSA).

Global trackers that strip out US exposure

To address concentration concerns, a couple of global ETF launched in 2024 with no exposure to the US stock market. Given that the US accounts for just over 70% of the MSCI World index, this makes these global ETFs vastly different from conventional global trackers.

• Kyle Caldwell’s investment trust ideas for 2026
• Two UK funds I’d own in 2026

In 2025, stripping out US exposure paid off for this ETF type. A conventional global tracker, such as Vanguard FTSE All-World ETF (LSE:VWRL), returned 14.4%. However, greater gains were made by Amundi MSCI World Ex USA ETF (LSE:WEXU) and Xtrackers MSCI World ex USA (LSE:XMWX), which both returned 22.7%.

Both non-US global ETFs have around a third of assets in Europe, 20% in Japan and over 10% in the UK.

Dividend strategies

Dividend-focused strategies may fit the bill for those looking for additional diversification. One option is Vanguard FTSE All World High Dividend Yield ETF (LSE:VHYG). It owns companies with dividend yields that are higher than the global average. This means it buys cheaper shares than a classic global stocks tracker and yields far more, at 3%.

It holds a lot less in the US than a standard global tracker fund, with a 45% weighting.

In 2025, this strategy outperformed the conventional global tracker, with a gain of 17.7%.

Other ways to reduce US concentration risk

There are various other options, including ETFs that follow a certain investment style, such as focusing on value shares, and even a product that aims to mimic the investment philosophy of, arguably, the world’s greatest investor Warren Buffett.

To give two examples, iShares Edge MSCI USA Value Factor ETF (LSE:IUVF) is up 23.9% and SPDR MSCI USA Value ETF (LSE:UVAL) is up 19.9% in 2025.

The Buffett-style ETF, VanEck Morningstar Global World Moat ETF (LSE:GOGB), which invests in economic moat companies, is up 15.9%.

A so-called moat refers to a business with a long-term sustainable competitive advantage, which protects its market share and profits from rivals. This could be a powerful product or brand with a loyal customer base, intangible assets, a patent on proprietary technology or the so-called network effect, whereby goods and services become more valuable as more people use them.

• How bonds performed in 2025: fund winners and losers
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

Another option is to research global actively managed funds that invest vastly differently compared with the composition of the global stock market. Examples of funds that have delivered strong gains over multiple time periods and are very light on US exposure include Artemis Global Income, Ranmore Global Equity and Orbis OEIC Global Equity Standard.

It would be a bold call to bet against the US market over the long term due to its abundance of innovative and entrepreneurial businesses. However, on the back of its strong performance over various time frames and increasing concentration risk, particularly over the past three years, the start of a new year could be a good time to review holdings and ensure your portfolio is sufficiently diversified and not disproportionately weighted towards the fortunes of one country.