Diversification as a Strategic Advantage in Today's Tech Rally: Why IGM Outperforms IYW

The current euphoria in technology stocks has created a paradox for investors: while the sector's momentum is undeniable, its concentration poses significant risks. In this environment, the choice between broadly diversified ETFs like BlackRock's IGM and more concentrated alternatives such as Lattice's IYW is not merely tactical but existential. The former, with its expanded universe of holdings and structural diversification, offers a compelling case for investors seeking balanced, long-term growth.

The Perils of Concentration in a Tech-Driven Market

The "Magnificent 7" and their ilk have dominated global equity markets in recent years, driving much of the technology sector's gains. However, this concentration has created a fragile ecosystem. As highlighted by the Loomis Sayles Growth Equity Strategies team, passive exposure to large-cap indices-such as the S&P 500-can inadvertently lead to overreliance on a handful of stocks, increasing downside risk when market dynamics shift. For instance, the iShares U.S. Technology ETF (IYW), which focuses narrowly on U.S. tech equities, has a top-three holdings concentration of 44.85%. This level of concentration exposes investors to volatility tied to the performance of dominant names like Apple, Microsoft, and NVIDIA.

IGM's Structural Design: A Blueprint for Resilience

In contrast, the iShares Expanded Tech Sector ETF (IGM) offers a more nuanced approach. Tracking the S&P North American Technology Sector Index, IGM includes 277 holdings as of December 2025, with a top-three concentration of 26.43% according to Seeking Alpha. This broader exposure extends beyond pure-play tech stocks to include communication services and consumer discretionary equities, reducing reliance on any single business driver. Loomis Sayles emphasizes that such diversification-spreading capital across uncorrelated products and services-is critical for consistent performance across market cycles.

The risk-adjusted returns of IGM further underscore its advantages. In the past quarter, IGM's Sharpe Ratio stood at 1.15, outperforming IYW's 1.02. While both ETFs exhibit similar volatility (4.48% for IGM vs. 4.28% for IYW), IGM's higher Sharpe Ratio indicates superior returns per unit of risk. This efficiency is partly attributable to its structural design, which mitigates the systemic volatility inherent in concentrated portfolios.

The Loomis Sayles Perspective: Diversification as a Strategic Imperative

Loomis Sayles' 2025 investment outlook underscores the importance of structural diversification in an era of unpredictable macroeconomic shifts. The firm's Global Allocation strategy, which combines global equities with high-conviction fixed income, exemplifies this philosophy. While IGM is not a Loomis Sayles product, its design aligns with the firm's principles of reducing volatility through broad exposure. By avoiding overconcentration in a single sector or geography, IGM mirrors the firm's approach to managing downside risk while preserving growth potential.
Critically, IGM's inclusion of climate risk assessment tools-such as those from ICE Climate-further enhances its resilience. These tools evaluate physical and transition risks, ensuring that the ETF's holdings are not only diversified but also aligned with long-term sustainability goals. This layer of risk management is absent in concentrated ETFs like IYW, which lack the structural safeguards to navigate emerging threats such as regulatory shifts or technological obsolescence.

The Case for IGM in a High-Tech Market

While IYW may deliver outsized returns during a tech rally, its vulnerability during market corrections is well-documented. For example, during periods of investor sentiment shifts or regulatory scrutiny, ETFs with narrow exposure face sharper declines. IGM, by contrast, spreads risk across a larger number of holdings, including those in adjacent sectors like communication services and consumer discretionary. This diversification not only smooths returns but also reduces the likelihood of catastrophic underperformance.

Moreover, IGM's lower valuation metrics and improved liquidity-relative to concentrated peers-position it for sustained growth. As noted by Seeking Alpha analysts, these factors contribute to its outperformance in 2023–2025, with further upside potential anticipated. For investors prioritizing long-term stability over short-term momentum, IGM's structural advantages are hard to ignore.

Conclusion: Diversification as a Hedge Against Uncertainty

In a market where tech dominance is both a blessing and a curse, diversification is not a passive choice but a strategic necessity. IGM's broader sectoral exposure, lower concentration risk, and alignment with Loomis Sayles' principles of structural resilience make it a superior option to IYW. While concentrated ETFs may capture the upside of a tech rally, they also amplify its downside. For investors seeking balanced growth in an increasingly volatile landscape, IGM offers a blueprint for navigating the challenges of the 21st-century economy.