We Found 19 Well-Diversified ETFs That Pass the 5% Test

A screen of exchange-traded funds has identified 19 diversified ETFs that hold no more than 5% of assets in any single stock, a threshold financial advisors often recommend to limit concentration risk [1]. The analysis comes as major market-cap-weighted indexes have grown increasingly top-heavy. The Dow Jones Industrial Average, S&P 500, Nasdaq 100, and Russell 3000 each contain multiple stocks that represent at least 6% of their overall market capitalizations [1]. That means investors who follow a simple, passive, index-fund-based strategy may be unintentionally violating the 5% rule, ending up with portfolios concentrated in mega-cap names such as Nvidia and Apple [1]. Index funds are designed to replicate the performance of a specified basket of securities, and academic research has consistently found that most active stock pickers underperform the relevant index after fees and taxes [2]. However, the concentration in standard benchmarks has prompted a search for alternatives. The 19 ETFs identified span categories including world stock market funds, international ex-U.S. funds, equal-weight funds, small-cap funds, extended-market funds, and dividend-focused funds [1]. World stock market ETFs dilute large-cap U.S. holdings by adding smaller domestic companies and international stocks. The three largest by assets under management that pass the 5% test are the Vanguard Total World Stock ETF, the iShares MSCI ACWI ETF, and the State Street SPDR Portfolio MSCI Global Stock Market ETF [1]. International ETFs achieve similar dilution because they hold a large number of stocks across many countries [1]. Equal-weight ETFs track the constituents of a major index but assign each the same weighting, avoiding the concentration of market-cap weighting. The Invesco S&P 500 Equal Weight ETF and the First Trust Nasdaq 100 Select Equal Weight ETF are among the largest in this category [1]. The Invesco QQQ Trust, by contrast, tracks the market-cap-weighted Nasdaq-100, which has a heavier tilt toward its largest components [8]. The Russell 1000 Index, which tracks the largest 1,000 U.S. stocks, had a weighted average market capitalization of $1.322 trillion as of December 31, 2025, illustrating the scale of the concentration challenge in broad benchmarks [6]. Small-cap and extended-market ETFs pass the test because they hold many smaller companies, though these stocks can be more volatile and sensitive to macroeconomic conditions such as interest-rate changes [1]. Dividend ETFs also tend to be less concentrated because the multi-trillion-dollar technology firms that dominate major indexes generally do not pay significant dividends [1]. The Schwab U.S. Dividend Equity ETF and the iShares Core Dividend Growth ETF are among the largest dividend funds that meet the 5% threshold [1]. The analysis notes that equal-weight funds often carry higher fees and have posted lower average returns than their market-cap-weighted counterparts, and that dividend-paying companies may not keep pace with non-dividend payers in terms of capital gains [1].