On the latest episode of ETF 360, senior industry analyst Kirsten Chang spoke to TEMA ETFs founder and CEO Maurits Pot. He dug into TEMA’s latest offering, DSPY, which uses a novel historical weight strategy.
Concentrating on Risk
Today’s S&P features staggering levels of concentration, wit the top ten stocks accounting for somewhere between 37 and 39% of the market, according to Pot. He noted, “These levels we’ve seen twice in the last hundred years, the 1920s and the 1970s.” Pot believes the rise of the Mag 7 has been a big contributor to these historic levels of concentration.
TEMA ETFs to Focus on a More Diversified Approach
Diversity is especially important in 2025, given the market turbulence related to shifting tariff messaging. Pot shared that investors are growing wary, especially given the valuations of some of the top companies in the market. “2025 has revealed that the Mag 7 has risks, and one of those risks is concentration risk and another is valuation risk.”
Pot offered that investors overexposed to a small number of companies in the 1970s faced severe portfolio challenges. TEMA ETFs is deploying a unique historical weighting strategy to counteract concentration risk. There is no doubt the Magnificent 7 have been driving performance in a way that has, until recently, benefited some investors. But things are starting to shift. “What we do take a view on is, over time, is there a chance that those other companies then start to contribute to the overall performance,” Pot said. “If that were to be the case, that would potentially reduce the impacts of the Magnificent 7.”
Can't Hardly (Equal) Weight
Chang asked Pot about equal weighting, but he sees issues there that don’t impact historic weighting. Invented roughly 22 years ago, equal weight strategies seem like they could be a solution to concentration problems. Pot noted, however, that, “the challenge people have with equal weight, which is a lot less appreciated, is how low the overlap is with full weight.”
DSPY solves the problem by reducing concentration risk significantly while also keeping the full weight overlap higher than an equal weight product would. Accordingly, this is useful for core exposures. “It allows you to stay invested in the S&P 500 but with lower concentration levels while still having, relatively speaking, more exposure to the largest and, until recently, fastest growing companies in the index.”
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