Is there going to be a tech market crash? If so, you definitely didn’t hear it here first. Bearish commentators have been forecasting a correction in technology stock prices for almost as long as the current bull run has galloped onwards, and upwards. The bears certainly have reasons to be wary. The valuations of the Magnificent Seven are high, and so missing elevated growth expectations can see the stock price punished, as Microsoft (MSFT:NASDAQ) and Alphabet (GOOG:NASDAQ) investors found out in the last few weeks.

DEEPSEEK DISRUPTION

Meanwhile these companies are pouring huge amounts of money into artificial intelligence, with uncertain results. The arrival on the scene of the Chinese large language model DeepSeek underlines the risk of disruption to the big, incumbent tech titans. So far the market has largely taken DeepSeek in its stride, albeit with an initial bout of panic which saw over half a trillion dollars wiped of the value of Nvidia (NVDA:NASDAQ). DeepSeek’s model may even ultimately prove positive for the US tech sector. But with a technology as emergent as AI, it would be a surprise if there were no more surprises in store.

High valuations and roiling disruption are not new to the technology sector. But the heightened tech exposure held by investors perhaps makes these characteristics of greater concern.

An S&P 500 tracker fund now has a third of its portfolio invested in the Magnificent Seven. A typical global tracker fund has around three quarters of its portfolio invested in the US, and consequently just under a quarter of its portfolio invested in the Magnificent Seven. This has no doubt served investors incredibly well in the last decade, and the Magnificent Seven may well continue to leave the rest of the market chomping at their heels. But the recent wobble in stock prices precipitated by DeepSeek should at least serve as a timely nudge for investors to check in on their exposure, and make sure they’re still happy with it.

DIALLING DOWN EXPOSURE

Those who do wish to dial down exposure to the Magnificent Seven have options. Probably the simplest strategy is to diversify away from the US and into other regions such as the UK, Europe, Japan, or emerging markets. This can be achieved by choosing active funds in these regions, or passively through trackers.

While this strategy can be executed passively, it is still active at an asset allocation level if investors are moving away from a global tracker fund (which passively allocates money depending on stock size), towards a regional split decided by each investor. In other words, through an active allocation of capital.

For investors who want to shift away from the Magnificent Seven but still want to retain exposure to the wider US stock market, they might consider an active fund which has a lower technology weighting. This may be achieved by investing in value managers, potentially including income funds like JP Morgan US Equity Income (B3FJQ59). Another option would be to invest in US smaller companies through a vehicle such as Artemis US Smaller Companies (BMMV576). Investors looking to perform a similar shimmy away from the Magnificent Seven within their global fund allocation might consider funds like Schroder Global Equity Income (BDD2CM9).

EQUAL-WEIGHT OPTION

Another option would be to seek out an equally weighted S&P 500 tracker such as the iShares S&P 500 Equal Weight ETF (EWSP), which allocates money to each of the stocks in the US index equally. While this strategy is passive in that it follows an automatic rules-based investment policy, it’s not passive in the sense that it doesn’t allocate money based on the size of a company, which is the more usual, if not universal, passive methodology. The result is the fund invests the same amount in the smaller stocks in the index as it does in the biggest, for better or worse.

Some investors might decide the recent jitters in the highly valued US stock market are cause for a reduction in equity risk altogether. They might therefore consider upping exposure to more cautious multi-asset funds like Personal Assets Trust (PNL), a bond fund or money market funds, or indeed individual gilts which confer certain tax advantages for those investing outside a SIPP or ISA.

A MORE NUANCED APPROACH

If investors are adjusting their portfolios, there’s no need to throw the baby out with the bathwater. Managing a portfolio needn’t be an all-or-nothing endeavour, and investors can tilt their portfolio towards or away from any given region or sector without executing a wholesale switch. Given the importance of the Magnificent Seven to the global stock market, it would be unwise to ditch all exposure to these companies. But the potential for upheaval as the AI race progresses might favour a more thoughtful, nuanced approach to investing in these companies.

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