##  [# Beyond the Mag7: Finding Value in a Top-Heavy Market](/sections/advisor-center/beyond-mag7-finding-value-top-heavy-market) 

 

# Beyond the Mag7: Finding Value in a Top-Heavy Market

 

 

As the Mag7 continues to drive U.S. equity gains, a massive valuation gap has opened in defensive factors. Discover why active management and high-quality defensive names offer a strategic hedge for a 2026 risk-on portfolio.



 

 

 

 

 [![ETF.com](/sites/default/files/styles/author_image_icon/public/2026-01/etf.com_400x400.png?itok=ZTjMp3us "white")](/authors/advisor-intel) 

[By Advisor Intel](/authors/advisor-intel)

 Jan 16, 2026

 Edited by: ETF.com Staff

 

 

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*Source: Freedom Advisors*

## Finding Value in Playing Defense

- Market concentration and valuation extremes persisted throughout 2025: Megacap tech (Mag7) stocks have driven strong U.S. equity gains post the April "Liberation Day" sell-off tied to tariff threats, leading to narrow market breadth and high concentration in the S&amp;P 500. This has produced significant valuation gaps versus the broader market (i.e. equal-weighted indices), and, in particular, defensive market segments.
- In 2025, defensive factors, whether Minimum Volatility or High-Dividend strategies, underperformed high beta market styles, especially sectors and themes tied to data center-driven capital spending. Defensive sectors such as healthcare, staples, and utilities have lagged as tariff fears eased and pro-cyclical growth prevailed. The overall profitability across defensives is similar to that of the broader market, but defensives have also seen downward earnings revisions, reducing their appeal in the face of earnings growth momentum heading into 2026.
- We believe sentiment has swung to extremes favoring cyclical risk-on over defense, as the latter has faced a throwing-out-the-baby-with-the-bathwater moment. Factor analysis shows investors demanding larger premiums (via low relative exposures to quality and growth) to hold defensive characteristics amid higher growth uncertainty, pushing minimum volatility and high-dividend factors to near post-COVID extremes in valuation and yield attractiveness.
- We hold to a base-case earnings growth outlook but see selective opportunities across defensive segments. We advise maintaining risk-on positioning aligned with expected ~2% real GDP growth in 2026 (supported by OBBBA stimulus, AI buildouts, and potential Fed cuts); however, one should consider selectively adding to defensive exposures, especially high-quality names less impacted by cost inputs and financial leverage and/or diminishing demand via active management or systematic portfolio construction.

[![](https://www.etf.com/sites/default/files/inline-images/Group%202854_0.png)](/sites/default/files/2026-01/Finding%20Value%20in%20Playing%20Defense%202025-12-09.pdf)

***Disclaimer:** The market insights, projections, and investment strategies expressed in this article are solely those of the contributor and do not necessarily reflect the views or opinions of ETF.com. This content is provided for informational purposes only and does not constitute financial, investment, or legal advice.*

 
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 [ Advisor Intel ](/authors/advisor-intel) 

 

 

  Providing market perspective from the front lines of wealth management. Written exclusively by practicing financial advisors, this commentary focuses…   [View Bio](/authors/advisor-intel)

 



 

 


 Related Topics  [Equity](http://www.etf.com/topics/equity) 

 [Volatility](http://www.etf.com/topics/volatility) 

 [Growth](http://www.etf.com/topics/growth) 

 [Value](http://www.etf.com/topics/value)