The world has changed and so should investing.
The last two decades belonged to index-like investing: sometimes plainly through ETFs, sometimes dressed up by closet-index managers running separately managed accounts that quietly mirror the benchmark. Lately those same closet indexers have started featuring tax-loss harvesting of the index: a fresh coat of paint on a house with a cracked foundation.
At Lear Investment Management we believe the conditions have changed. The investors still using index-like products are using yesterday’s solution for today’s problem. Below we explore six reasons why.
The S&P 500 is weighted by size. The biggest names carry the most weight. As of late April, Nvidia is about 8% of the index. Apple is about 7%. Add Microsoft, Amazon, Alphabet, and Meta, and the “Magnificent Seven” are roughly 35% of the entire index. Should the size of a company be the only factor in why you hold a stock?
To be clear, we like several of the largest names in the index and recognize their importance in a portfolio. The investment challenge is understanding their true position size and risk, and making sure there is room for other names at meaningful weightings.
The world is changing rapidly. AI is rewriting industry boundaries, and today’s index leaders are the ones bankrolling it. Now is the time to find the next generation of companies jockeying into position. Think NVDA three years ago.
Software and social-media companies used to be balance-sheet light: high margins, low capex, and easy compounders. Those days are over. They are now balance-sheet heavy: data centers, GPUs, power contracts, cooling, fiber, transformers. Combined hyperscaler capex in 2026 is estimated at roughly $725 billion, with credible forecasts pushing past $1 trillion in 2027. That is the spending of a small G20 economy — all funded by the seven companies the index already owns at full weight. Tech is now an industrial sector wearing a software costume.
Where is all that capex landing? With chip designers and packagers, custom silicon, power producers, grid hardware, transformers, copper miners, uranium miners, water and cooling specialists, fiber and networking suppliers, and data-center landlords. Many of the best names in those categories are not in the S&P 500.
Industries are an underrated part of the index story. The best-performing S&P 500 sector of 2026 so far is Energy. It is also one of the smallest, approximately 3.4% of the S&P 500 as of April 30. And the standout name in U.S. natural-gas exports, Cheniere Energy (LNG), is not in the index at all. Analysts are now flagging it as a 2026 inclusion candidate, after most of the move.
The problem with index-huggers is that a portfolio often maintains exposure to out-of-favor industries regardless of market conditions. For example, financials make up roughly 16% of the S&P 500 but have struggled in 2026. We currently own no traditional financials.
Gold. Silver. Copper. Uranium. Every one of them matters to the 2026 economy — for hedging currency debasement, nuclear baseload, the AI grid, and the energy transition. Not one of them are in the S&P 500. The index can only own equities, and only large U.S. equities at that. Some of the most important investable themes of this decade live, by definition, outside the box.
The standard “fix” is to bolt on a mid-cap or small-cap index. Same problem, different shape. The S&P Midcap 400 is roughly 10% Real Estate. Do you actually want REIT exposure right now? An index isn’t a thesis. It is a list someone else made for someone else’s reasons.
Honestly, we’re not sure when indexing became the default for serious money. Thirty years ago, when I started in this business, very few thoughtful investors used index funds. Index-hugging and style boxes were for pension committees that didn’t want to get fired or sued, so they hugged a benchmark, cashed their checks, and called it prudence. I get that. But we are not running a pension committee. We are helping real families manage irreplaceable wealth, and that requires us to have a view of the economy and the markets.
We blame two things: first, advisors who haven’t refreshed their playbook for a market that changed structurally when interest rates rose from near zero to more than 4%; and second, an asset-management industry that, much like big pharma, has built enormous marketing machines around the products that pay them best. The largest index providers run more than a trillion dollars each, and they spend accordingly to shape industry education, advisor talking points, and the default investment menu.
Don’t take our word for it. Look at the numbers. Then think about what indexing might cost your clients and your business valuation over five years. And think about how you could win new business by having a different story than the masses.
Keep an open mind and ask the simple question: do my holdings reflect the world we currently live in? Let us walk through that with you, honestly, position by position. If you are an advisor, think about the families you represent. Challenge the norm. Do the work. Find a modern solution. Fighting for what is right for your clients is, in fact, the right thing to do.
