Why Managed Concentration in a Concentrated Market Matters for Technology Investment Portfolios

In recent years, equity markets have undergone significant changes, marked by rising market concentration, particularly within large-cap U.S. technology stocks. Almost 35% of the U.S. stock market’s current value is concentrated in companies known as the “Magnificent 7” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla), with the performance of these companies accounting for 42% of total market returns in 2025¹ and momentum a key element of the Magnificent 7 tech stocks driving outsized returns since 2022. Indeed, U.S. stock market concentration in 2025 surpassed its previous peak of 1932.² As also seen in the Market Cap graph illustration of the top 10 holdings of the S&P 500, this elevated concentration introduces unexpected risks for investments that passively mirror a benchmark.

When a disproportionate share of market performance and investor capital is tied to a handful of dominant stocks, portfolio vulnerability increases within passive investment structures not designed for higher concentration holdings. Shifts in market sentiment, regulatory changes or unexpected disruptions affecting these leading firms can trigger outsized volatility and losses across passive portfolios that mirror headline indices. While passive investing has gained popularity, the case for active management is stronger than ever.

In a fast-evolving technology sector where there are good reasons to hold certain dominant stocks, actively managed concentration offers significant advantages. Here’s an overview of those advantages and why the actively managed concentration approach of the Red Oak Technology Select Fund portfolio management team has proven especially effective.

Deep Fundamental Research and Enhanced Focus. Technology companies often have complex, rapidly changing business models. An active manager can perform deep, fundamental research to differentiate between companies with true, sustainable competitive advantages and those that are purely speculative. For the Red Oak Technology Select Fund, we rely on intense, specialized analysis to identify attractively valued, high-growth technology companies with business models featuring high barriers to entry that passive strategies might dilute.

Reducing Risk through Stock Selection. In the technology sector, returns are not evenly distributed, with sub-sectors often featuring “winner take all” dynamics. Further, technology stocks often trade at high valuations, making stock selection essential to identifying firms with genuine, long-term earnings potential. A concentrated portfolio allows active managers to avoid overexposure to hype-driven bubbles, overweight “winner” companies and exploit high performance dispersion. While holding fewer stocks might seem riskier, managed concentration mitigates overall portfolio volatility by selecting companies with strong fundamentals and low correlation to one another. The Red Oak Technology Select Fund employs a “financials-first” stock screening process, seeking valuation discipline, quality leadership, profitability, pricing power and stability.

Quality Over Quantity. Active managers can conduct deep research to find technology companies with sustainable competitive advantages and strong fundamentals, including healthy earnings, high free cash flow yield, high return on invested capital and low sales variability, in a sector prone to disruption. While concentration is often perceived as risky, active, disciplined management of a few high-quality companies can help reduce risk. When markets are heavily concentrated, passive strategies may inadvertently expose investors to unexpected risks should market leadership rotate or if those few dominant stocks underperform. The Red Oak Technology Select Fund normally holds 20-30 securities in 5-8 technology sub-sectors and employs a sell discipline as key to its performance as its selection criteria.

Real-Time, Tailored Adaptability and Agility. The technology sector is volatile, experiencing rapid shifts in innovation cycles, themes and company leadership. Active managers can identify turning points and quickly adapt to emerging trends, strategically allocating capital toward specific high potential “new economy” segments. Intentionally designing selective concentration exposure, the Red Oak Technology Select Fund’s representative themes include enterprise capital technology spending, digital media advertising, semiconductor proliferation, electronic finance and cybersecurity.

From an individual stock perspective, managed concentration enables mitigation of “winner’s curse,” managed risk during sector pullbacks and reduction in the crowding that has become typical, as reflected in the high top-end concentration of some major passive, market-weighted indices. Active managers can adjust weightings—add to positions as valuations and long-term prospects become attractive, take off gains, exploit market inefficiencies, reduce exposure to or completely exit overvalued or overweighted stocks and dynamically and purposefully re-balance positions without regard to raw market forces—providing a defensive advantage that index tracking funds cannot. While the Red Oak Technology Select Fund typically holds positions in some, but not all, of the Magnificent 7 stocks, our managed portfolio offers daily oversight and the ability to pivot rapidly at market inflection points in response to market pullbacks or shifting trends and allocate away from incumbent, disrupted firms to new leaders, particularly useful for navigating the fast-paced, high-beta technology sector.

Higher Potential Alpha Generation. At Oak Associates, we believe that a concentrated portfolio of financials-first technology sector “best ideas” leads to higher potential Alpha generation. For the latest holdings, attribution and performance of the Red Oak Technology Select Fund, please visit https://www.oakfunds.com/strategies/red-oak-technology-select/.

¹ “U.S. Equities, December 2025,” S&P Dow Jones Indices Market Attributes.

²”Stock Market Concentration Has Surpassed Its 1930s Peak. Should Investors Worry?,” Morningstar, February 27,2026. As a % of S&P 500 Market Cap graph data source: Bloomberg as of 3/9/2026.

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