Mega-Cap Exposure: Manage Concentration Risk in the U.S. Market

Learn how rising S&P 500 concentration affects portfolios and how iShares Build ETFs can help fine-tune mega-cap exposure and manage concentration risk.

Key takeaways

• The S&P 500 has become increasingly concentrated,¹ with mega-cap stocks driving a growing share of market returns.²
• Investors may have less mega-cap exposure relative to broad benchmarks due to strategic tilts, reliance on active large-cap funds, and/or structural diversification constraints.
• iShares Build ETFs can help fine-tune mega-cap exposure. For example, TOPT can close the mega-cap gap bringing exposures closer to benchmark, while XOEF can help reduce mega-cap and AI exposure.

Why many portfolios have less exposure to mega-cap stocks

The shape of the U.S. equity market has evolved, with mega-cap stocks and sector concentration reaching historic highs. The top 20 companies of the S&P 500 now account for 49% of the index³ and contributed 64% to its five-year return.⁴

However, 83% of U.S. asset manager (AM) moderate models are underweight mega-caps⁵ and the average financial advisor model is ~7% underweight large caps compared to their respective benchmarks.⁶ These underweights may reflect strategic tilts such as favoring smaller caps for diversification, growth potential, opportunities for excess returns in less efficient markets, or using equal-weight approaches that may reduce mega-cap exposure and increase allocations to smaller companies.

However, mega-cap underweights are often unintentional, stemming from benchmark drift rather than deliberate portfolio decisions. This may reflect the usage of active funds to access large-cap exposure, as 63% of U.S. large blend active funds are underweight mega-cap names.⁷ The underweight may reflect diversification limits that cap aggregate company weights, as well as active managers differentiating from passive index strategies by maintaining a more balanced market cap allocation. As a result, advisors relying on active funds for large-cap exposure may inadvertently underweight mega-cap stocks.

How mega-cap exposure may impact portfolio risk and returns

Mega-cap companies have continued to drive market performance, supported by strong fundamentals and durable competitive advantages. The top 20 names in the S&P 500 delivered 10.5% revenue growth over the past year— nearly double that of the next 480.⁸ And 15 of these companies hold wide economic moats, characterized by high network effects, substantial intangible assets, cost advantages, high switching costs, or efficient scale.⁹

Furthermore, with Technology and Financials representing ~62% of the top 20 names,¹⁰ 2025 returns for these sectors were driven by earnings growth rather than valuation expansion (Fig. 1).¹¹

Given this backdrop, underexposure to mega-cap stocks may cause investors to leave potential returns on the table and efforts to diversify away from them could represent larger active calls. Over the last year, the S&P 500 rose 18% vs. 11% for its equal-weighted counterpart.¹²

Fig. 1: U.S. sources of return

At the same time, market leadership comes with important trade-offs. Valuation and concentration risk remain key considerations as investor exposure becomes increasingly reliant on a small group of companies. The largest 20 stocks in the S&P 500 have also exhibited higher total risk in 2025 relative to the broader index,¹³ underscoring the need for thoughtful monitoring as investors balance the benefits of mega-cap leadership against the potential for heightened volatility.

The bottom line is that all investors may want to review their portfolios for mega-cap positioning and many may want to fine-tune exposure to mega caps to reflect their views.

Using ETFs to adjust mega-cap exposure

The iShares Build ETF Suite provides a flexible set of tools to fine-tune exposure across the U.S. large-cap universe. By segmenting the S&P 500 into building blocks, iShares Build ETFs empower investors to adjust mega-cap positioning as market conditions, valuation perspectives, or risk appetites evolve.

The following case studies show how iShares Build ETFs can help investors adjust mega-cap positioning in U.S. equities across a range of portfolio needs.

1. Closing the mega-cap gap with TOPT: The average asset manager (AM) moderate model is less exposed to mega-cap stocks relative to broad benchmarks like the MSCI ACWI IMI (Fig.3).¹⁴ Adding the iShares Top 20 U.S. Stocks ETF (TOPT) could close an underweight to mega-cap stocks more efficiently by requiring a smaller portfolio allocation than an S&P 500 fund used for the same purpose. Note, the hypothetical alternative portfolio will still differ geographically from the MSCI ACWI IMI.

Fig. 3: Consider adding TOPT to help more efficiently close the mega-cap underweight

2. Rebuilding the S&P 500 using OEF and XOEF: The iShares S&P 100 ETF (OEF) and the iShares S&P 500 ex S&P 100 ETF (XOEF) can be used as modular building blocks to construct the S&P 500, helping provide greater control and precision over mega-cap exposure.

3. Reduce or increase AI exposure within the S&P 500: The iShares S&P 500 ex S&P 100 ETF (XOEF) can reduce exposure to AI companies, resulting in ~8% AI exposure versus ~33% in the iShares S&P 500 ETF (IVV) (Fig. 4).¹⁵

Fig. 4: Use iShares Build ETFs to dial up or down exposure to AI within the S&P 500

4. Diversifying concentrated single-stock positions: Investors can consider harvesting losses from concentrated single stock mega-cap positions and reallocating to the iShares Top 20 U.S. Stocks ETF (TOPT), reducing reliance on individual stock outcomes in a market where dispersion has been high.

5. Managing mega-cap concentration risk: Investors seeking to reduce concentration risk while maintaining exposure to large-cap equities can shift a portion of their S&P 500 exposure to the iShares S&P 500 3% Capped ETF (TOPC). TOPC’s index caps holdings in the S&P 500 to 3%, reining in tech and mega-cap exposure while seeking to keep the risk-return profile and tracking error close to the S&P 500 compared to equal-weight strategies.

Conclusion

We believe as the market continues to evolve. maintaining a deliberate and dynamic approach to mega-cap exposure is becoming increasingly more important. The dominance of technology and other mega-cap stocks has redefined the structure of U.S. equity performance, creating both opportunities and concentration risks for investors. The iShares Build ETF Suite provides a flexible toolkit to help investors as they seek to capture key market returns drivers while managing concentration risk.