Passive Investing Through ETFs May Be Losing Its Appeal
Passive investing through exchange-traded funds (ETFs) may be losing some of its appeal among investors. Gavin Filmore, Chief Revenue Officer at Tidal Financial Group, notes that many of his clients are no longer satisfied with simply buying popular ETFs tied to market indexes.
“I think investors are looking beyond just the — let’s call it the ‘VOO and chill’ approach — where you just buy the index in an ETF, which is a great approach, but they’re looking for diversification,” Filmore told CNBC’s “ETF Edge” this week. “And they’re not finding it within the product or within the index, so they have to look beyond that.”
Filmore was referring to the Vanguard S&P 500 ETF (VOO), which tracks the S&P 500’s performance. Both the ETF and the index are up nearly 16% so far this year.
However, Strategas Securities’ Todd Sohn argues that investors are losing diversification by using the S&P 500 as their benchmark. “Imbalance is the perfect word,” said Sohn, the firm’s senior ETF and technical strategist, in the same interview. He pointed out that technology now accounts for more than 35% of the index—a record high.
At the same time, defensive sectors such as consumer staples, health care, energy, and utilities have shrunk to an all-time low weight of 19% in the S&P 500, according to FactSet data.
Where Are Traders Turning?
So where are traders looking for opportunities? Sohn observes a renewed interest in small-cap stocks. The Russell 2000 Index, which tracks small-cap companies, hit an all-time high recently and recorded its best week since August. Over the past six months, the Russell 2000 is up more than 28%, significantly outperforming the S&P 500. Earlier this month, the Russell 2000 surpassed 2,500 for the first time ever.
“I wonder if you’re seeing this broadening happen outside the large-cap space, where investors are comfortable with their tech and AI exposure and seeking other routes,” Sohn said.
Looking Ahead: The “Magnificent 7”
While small caps are gaining momentum, the heavy hitters will take center stage on Wall Street next week. Five of the seven so-called “Magnificent 7” — Meta Platforms, Alphabet, Microsoft, Apple, and Amazon — are scheduled to report their latest earnings, which could have a significant impact on market direction.
As investors weigh these opportunities, diversification and sector balance remain key considerations in navigating today’s complex market environment.
https://www.cnbc.com/2025/10/25/popular-investing-strategy-losing-appeal-with-stocks-at-record-finding.html
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