A closer look at brokerage holdings reveals how the S&P 500’s composition has shifted considerably. The index once seen as a broad measure of American markets now carries a heavier technology weighting than at any point in the past two decades.

Technology stocks made up close to 40% of the Vanguard S&P 500 ETF by mid-2026, according to VanEck’s “S&P 500 Concentration Risk,” and the top 10 holdings controlled close to 40% of the full index.

That level of concentration turns what most people treat as a safe, diversified core holding into something far narrower than its name suggests.

Investors who felt the full force of the benchmark’s 2.6% single-session drop on June 5 learned that lesson at speed, Fortune reported.

Analysts at VanEck and Royce Investment Partners have pointed to small-cap and international ETFs as segments that sit outside the cap-weighted S&P 500’s concentration profile.

The case starts with understanding exactly how lopsided the S&P 500 has become and why recent analyses flag the tilt as urgent.

How a handful of stocks seized control of the S&P 500

The 10 largest companies in the index held 41.5% of its total market cap as of June 9, according to the American Association of Individual Investors’ June 11 analysis Three Ways to Diversify From a Top-Heavy S&P 500.

Eight of those 10 operate in the technology or communication services sectors, meaning one rough earnings season in tech could drag the entire benchmark lower.

“Rotating gains into international and emerging market equities is a great way to diversify both geographically and across sectors and industries,” Cyrus Amini, chief investment officer at Hyphen Wealth Management, told InvestmentNews.

We’ve also focused on healthcare and infrastructure as two areas either less exposed to AI competition risks or direct beneficiaries of AI productivity boosts.

That top-10 share has roughly doubled from about 18% in 2016 to approximately 40% in 2026, VanEck senior product manager John Patrick Lee noted.

Lee concluded that a passive S&P 500 allocation now functions as an unintentional active sector bet, whether the investor planned it or not.

VanEck’s Lee noted that the concentration means a small number of companies now exert disproportionate influence on index-level returns.

Vanguard’s small-cap ETF filters out the weakest companies

The small-cap Russell 2000 gained 43.1% in the one-year period ended May 31, 2026, compared with 28.8% for the large-cap Russell 1000, Franklin Templeton reported, reversing a long streak that left many investors skeptical.

The Vanguard S&P Small-Cap 600 ETF (VIOO) offers targeted exposure to this segment with one important edge over other small-cap funds, S&P Global noted. 

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It tracks the S&P SmallCap 600 Index, which requires companies to show positive earnings before inclusion, screening out unprofitable firms that fill competing benchmarks.

VIOO holds 605 stocks with a price-to-earnings ratio of 16.8 and an earnings growth rate of 12.5%, Vanguard’s first quarter 2026 fact sheet confirmed.

Its top 10 holdings represent just 5% of total assets, a fraction of the S&P 500’s 40% concentration in its own largest names.

“Small-cap stocks have spent the last few years in the market’s shadow, but 2026 could shape up to be a different story. With interest rates falling, economic growth broadening, and valuations for smaller companies still sitting at attractive levels, investors are starting to rediscover the appeal of small-cap stocks,” Morningstar analyst Zachary Evens said.

Earnings-per-share growth for the S&P SmallCap 600 is projected at 22.9% in 2026, well ahead of the S&P 500’s projected 16.4% growth rate, wrote Sam Stovall, CFRA chief investment strategist, according to Money Show.

Vanguard’s VIOO targets profitable small-cap companies, offering diversified exposure as analysts expect stronger earnings growth in 2026.

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International stocks carry a steep valuation discount to the S&P 500

Developed international markets recently traded at a forward price-to-earnings ratio of about 16, compared with roughly 22 for the S&P 500, VanEck’s Lee reported. 

International stocks outperformed their U.S. counterparts by about 14 percentage points in 2025, driven in part by a weaker dollar, Fidelity’s 2026 outlook indicated. 

Goldman Sachs Research projects the dollar will continue weakening through 2026, providing a sustained currency tailwind for investors holding unhedged international stock funds.

The Vanguard Total International Stock ETF (VXUS) covers companies across Europe, Japan, and emerging markets for an annual expense ratio of 0.05%. 

VXUS also pays a dividend yield of 2.33% as of June 30, 2026, which tops the S&P 500’s current payout, Vanguard’s fund data showed.

The Vanguard Total Stock Market ETF fills the mid-cap blind spot

The Vanguard Total Stock Market ETF (VTI) holds more than 3,500 stocks spanning the full range of U.S. equities in a single fund.

It carries roughly an 82% overlap with the S&P 500 by weight, according to Guardfolio’s May 2026 breakdown, but the remaining slice of mid-cap and small-cap exposure adds diversification that the benchmark leaves behind.

Smaller companies have outperformed large caps during several stretches of 2026, and VTI’s broader composition provides exposure to those segments, VanEck’s Lee noted.

Lee and Royce’s Gannon have each argued that shifting some allocation into small-cap and international exposure, segments underrepresented in a cap-weighted S&P 500, is one way to address the concentration profile the AAII flagged in June.

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