S&P 500 Minus Big Tech Outperforms in 2026

The S&P 500 excluding the Magnificent 7 has quietly outperformed the full index in 2026, challenging the notion that Big Tech is the sole driver of market gains. The Defiance Large Cap ex-Mag 7 ETF (XMAG) has returned 13.7% over the trailing year, compared to 16.2% for the SPDR S&P 500 ETF Trust (SPY). This performance gap highlights a shift in investor sentiment, particularly among those wary of AI-driven valuations and seeking diversification beyond the tech-heavy Magnificent 7. The fund’s strategy involves excluding Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla, leaving a portfolio of roughly 490 large-cap companies. While the fund’s 0.35% expense ratio and 7% portfolio turnover suggest a passive, low-cost approach, its net assets of $142 million remain modest, raising concerns about potential closure risks for funds below $50 million. The dividend yield of 1.2% in XMAG is derived from companies like Johnson & Johnson, Exxon Mobil, and JPMorgan Chase, which have strong historical dividend growth. However, the fund’s income stream is limited, with distributions only twice since its October 2024 inception. The top holdings, including Broadcom at 3.85% and JPMorgan Chase at 1.94%, contribute to a diversified sector exposure, with information technology still leading at 21%. Despite the lower yield, XMAG has shown resilience, with a year-to-date decline of less than 1% compared to a nearly 4% drop in the full S&P 500. This performance suggests that investors skeptical of the Magnificent 7’s valuation may find value in the ex-Mag 7 strategy, though the fund’s modest size and low trading volume could pose liquidity challenges.