You diligently build a diversified portfolio. You buy a core S&P 500 ETF, assuming you have a balanced blend of US large-cap stocks. You add some other funds to round things out. But what if that core fund, and the ETF market as a whole, isn’t what it appears to be? What if, without realizing it, you’ve made massive, concentrated bets on one country, one market cap, and one investment style?
In today’s market, where mega-cap tech stocks dominate, the labels on our ETFs can be misleading. A “blend” fund might actually be a growth fund in disguise. That’s why it’s crucial to look past the name and use look-through analytics to understand what you truly own.
In the accompanying video, I use the ETF Action Navigator tool to peel back the layers of the US ETF market. Instead of relying on traditional classifications, I used our proprietary, rules-based derived analytics to see where investors’ money is actually allocated. The results revealed three significant, and potentially unintentional, biases that every investor should be aware of.
Finding #1: An Extreme Case of Home Country Bias
It’s natural for investors to favor their home market, but the current allocation in US-listed ETFs is staggering. Our analysis shows that nearly 80% of all equity ETF assets are in funds that invest primarily in US companies (meaning over 80% of their holdings are US-domiciled).
To put that in perspective, a global benchmark like the MSCI ACWI All-Country World Index has about 63% allocated to the US. While the US portion of the global market has grown, a nearly 80% allocation represents a significant active bet on US outperformance. This strategy has paid off handsomely for years, but it’s a concentrated position that could face headwinds if and when market leadership rotates internationally.
Finding #2: The Giants Dominate the Landscape
It’s no secret that large companies command the most attention, but the degree of concentration is stark. When we look through to the underlying holdings, we find that a massive 86% of assets in US-focused ETFs are in large-cap tilted strategies.
This makes sense given the popularity of funds tracking the S&P 500 and Russell 1000. However, it highlights how little exposure the average ETF portfolio has to the mid- and small-cap companies that can offer different growth trajectories and diversification benefits.
Finding #3: The Growth Bet You Didn’t Know You Made
This was the most glaring discovery. We often think of core index funds as being a healthy mix of growth and value. But because of their market-cap-weighted construction and the meteoric rise of companies like NVIDIA, Amazon, and the rest of the “Magnificent Seven,” these funds have developed a profound tilt.
Our rules-based analysis, which measures the weighted average of a portfolio’s holdings, revealed a stunning fact:
67.5% of all assets in US-focused equity ETFs now reside in portfolios with a significant growth tilt.
This means that even if you think you own a “core” or “blend” portfolio, you are likely heavily invested in growth stocks. The S&P 500, by its current composition, is functionally a growth fund. This isn’t necessarily bad—it’s been the winning trade for over a decade. But it is a massive, concentrated bet that many investors are making without even realizing it.
What This Means for Your Portfolio
These three biases—home country, large-cap, and growth—create powerful, overlapping concentration risks. If market dynamics shift, a portfolio that seems diversified on the surface could be surprisingly vulnerable.
This analysis should prompt you to ask a few questions:
- Am I aware of the deep growth tilt in my “core” holdings?
- Have I considered strategies to intentionally add diversification, such as equal-weight ETFs, dedicated value funds, or international positions?
- Am I prepared for a scenario where mega-cap tech does not lead the market?
For the last five years, deviating from this concentrated bet would have likely led to underperformance. However, markets are cyclical. Understanding these hidden allocations is the first step toward building a more resilient, all-weather portfolio. It allows you to be proactive, not reactive, when leadership changes.
Want to see how I uncovered this data? Watch the full video walkthrough. You can also explore these analytics for yourself using our ETF Navigator tool, which is free for all registered users at ETF Action.
Be mindful of your allocations, and thanks for watching.
The information provided in this article is for informational and educational purposes only and should not be considered investment advice or a recommendation to buy or sell any security. All investments involve risk, and past performance is not a guarantee of future results. You should conduct your own research and consult with a qualified financial professional before making any investment decisions. The author and ETF Action are not responsible for any investment decisions, damages, or other losses resulting from or related to the use of this information.
