In the modern investing landscape, few narratives have captured the public’s attention as powerfully as the rise of the “Magnificent Seven” – Apple, Microsoft, Alphabet, Amazon, Meta, Tesla, and Nvidia. These tech giants now represent roughly a third of the S&P 500, shouldering a significant share of the index’s recent gains.2 But as we look to the future, a pressing question emerges: should investors place so much faith – and capital – in such a concentrated slice of the market?
For investors using strategies like those of Inspire ETFs, which intentionally avoid companies that fail to align with biblical values, the absence of the Mag 7 might seem like a significant disadvantage. After all, these seven giants have been among the market's primary growth drivers in recent years. Yet, history and recent market data suggest a different perspective – one where diversified, values-based investing can still yield competitive returns.1,3,4
Market history is full of cautionary tales about the risks of over-concentration. In the 1960s and early 1970s, the “Nifty Fifty” – a group of blue-chip stocks like Polaroid, Xerox, and Eastman Kodak – were once considered “must-own” investments. They were seen as industry-defining companies with seemingly unassailable business models.
However, many of these former giants were eventually toppled by technological disruption, mismanagement, or changing consumer tastes. Xerox, once synonymous with office innovation, struggled through decades of restructuring. Polaroid went bankrupt – twice. Kodak, despite pioneering digital photography, failed to adapt to the digital era and paid a heavy price.
The lesson here is clear: even the most dominant companies can lose their edge. Figure 1 illustrates this point by tracking the turnover among the top 10 largest companies in the S&P 500 since 1985, highlighting the transient nature of market leadership.2
This year’s market performance serves as a timely reminder of the potential pitfalls of over-relying on the Mag 7. Despite their dominant market positions, several of these tech giants have fallen short of expectations, facing headwinds like regulatory scrutiny, stretched valuations, and slowing growth. As a result, the market-cap-weighted S&P 500 has underperformed more diversified benchmarks, including the Equal-Weighted S&P 500 and Inspire’s own large-cap ETFs – Inspire 500 ETF (PTL) and Inspire 100 ETF (BIBL) – both of which are currently outpacing the S&P 500.1,3
This divergence serves as a reminder that diversification matters. When a handful of companies account for approximately a third of an index’s weight, investors face an outsized risk from any single downturn or disruption.
While the Mag 7 may continue to play a significant role in the market, history suggests that no group of companies maintains dominance indefinitely. Excluding these companies due to a values-based investing approach doesn’t doom investors to underperformance. Instead, it may offer long-term advantages when market conditions shift, rewarding those who choose a broader, more diversified path.
Disclosures
Advisory services are offered through Inspire Investing, LLC, a Registered Investment Adviser with the SEC. All expressions of opinion are subject to change without notice and are provided for informational purposes only. Nothing in this article should be construed as an offer, solicitation, recommendation, or endorsement of any particular security, strategy, or investment product. Investing involves risk, including the potential loss of principal. Please consult your financial advisor before making any investment decision.
1 Past performance is not indicative of future results. All performance figures referenced herein are historical and may not reflect current or future market conditions. Actual investor outcomes may vary. There is no assurance that any investment strategy will achieve its objectives or avoid losses.
2 Information and data referenced in this article may be obtained from third-party sources believed to be reliable but Inspire makes no representation as to their accuracy or completeness. All trademarks and service marks are the property of their respective owners.
3 Inspire Investing, LLC serves as the investment adviser to certain proprietary ETFs used in Inspire portfolios. Inspire receives management fees from these ETFs, creating a potential conflict of interest. Inspire seeks to mitigate this conflict through policies and procedures that ensure recommendations are made in clients’ best interests and consistent with their unique goals and risk profiles. Additional details can be found in Inspire’s Form ADV Part 2A.
4 Inspire Investing integrates biblical principles into its investment philosophy through a Biblically Responsible Investing (BRI) approach. This value-based methodology reflects Inspire’s interpretation of Scripture and may not align with the views or beliefs of all investors. Inspire does not claim divine endorsement of any investment outcome or specific company behavior.
5 Certain statements may include forward-looking information based on current beliefs, expectations, and assumptions. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. Inspire undertakes no obligation to update or revise any forward-looking statements.
Before investing, carefully consider the funds’ investment objectives, risks, charges and expenses. To obtain a prospectus which contains this and other information, call 877.658.9473, or visit www.inspireetf.com. Read it carefully before investing.
Securities in the Index or in the Fund’s portfolio may underperform in comparison to the general securities markets or other asset classes. The Fund may focus its investments in securities of a particular industry to the extent the Index does. This may cause the Fund's net asset value to fluctuate more than that of a fund that does not focus in a particular industry. Fluctuations in the value of equity securities held by the Fund will cause the net asset value (“NAV”) of the Fund to fluctuate. The Fund is not actively managed and the Adviser will not sell shares of an equity security due to current or projected underperformance of a security, industry or sector, unless that security is removed from the Index or the selling of shares of that security is otherwise required upon a rebalancing of the Index as addressed in the Index methodology. Tracking error may occur because of imperfect correlation between the Fund’s holdings of portfolio securities and those in the Index. The Fund’s use of a representative sampling approach, if used, could result in its holding a smaller number of securities than are in the Index. To the extent the assets in the Fund are smaller, these risks will be greater.
Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.
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