Broadcom’s 140% Surge Shows XMAG Investors Get AI Exposure Without the Mag 7 Trap

Passive index investing has a concentration problem. The seven largest technology companies now account for roughly 35% of the S&P 500, which means owning a standard index fund today is less “broad market” and more “bet heavily on a handful of AI-driven mega-caps.” That reality is exactly what Defiance Large Cap ex-Mag 7 ETF (NASDAQ:XMAG) was designed to address.

What XMAG Is Built to Do

XMAG tracks the BITA US 500 ex-Magnificent 7 Index, which holds the 500 largest U.S. stocks weighted by free-float market cap, with one hard rule: Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla are permanently excluded. What remains is roughly 493 companies that have spent years in the shadow of those seven names.

The fund launched in October 2024 and carries a 0.35% expense ratio. Its top holdings as of early 2026 include Broadcom, Eli Lilly, JPMorgan Chase, and Berkshire Hathaway, with the top 25 positions representing 31% of the fund. The sector mix tilts toward financials and non-Mag 7 technology, giving it a more value-oriented character than a standard S&P 500 fund.

The return engine is simple: XMAG earns whatever the other 493 companies earn through business growth and dividends. There are no options overlays, no leverage, and no synthetic structures. It is a straightforward equity fund with a deliberate exclusion list.

The One-Year Case for Staying Outside the Magnificent 7

XMAG has delivered a 28% one-year return, compared to 35% for the SPDR S&P 500 ETF over the same period. That roughly 6.5-point gap reflects the cost of excluding some of the market’s strongest performers. Nvidia alone rose 99% over the past year, and Apple gained 38%. Missing those moves has a real price.

But the year-to-date picture in 2026 flips that narrative. XMAG is up 5% year-to-date, while SPY has gained only 4%. Microsoft is actually down 12% year-to-date, illustrating that Mag 7 concentration cuts both ways. When these names compress, SPY compresses with them.

Broadcom is worth flagging here. It is XMAG’s largest holding and has returned 140% over the past year, with AI chip revenue growing 106% year-over-year to $8.4 billion. XMAG excludes the Mag 7 specifically, not AI exposure broadly. Investors who want to participate in the AI buildout without concentrating in the seven most crowded names still get meaningful exposure through holdings like Broadcom.

Three Tradeoffs That Matter

1. The opportunity cost is real and asymmetric. In AI bull markets, the Mag 7 can generate returns that no diversified alternative can match. Nvidia’s 1,170% five-year gain is a structural drag on XMAG’s long-term relative performance. Investors who believe AI infrastructure spending will remain the dominant market theme for the next several years are accepting a significant cost by excluding these names.
2. AUM risk is a practical concern. XMAG crossed $100 million in assets under management in January 2026, which is encouraging but still modest. Small ETFs face closure risk and can experience wider bid-ask spreads that erode returns for investors transacting in size. The fund’s AUM trajectory bears watching.
3. The exclusion list is fixed, not dynamic. XMAG removes the same seven names regardless of their current valuations or growth trajectories. If Mag 7 stocks become genuinely cheap, or if one of the 493 holdings grows into Mag 7 territory, the index methodology does not adapt. Investors are making a permanent structural bet, not a tactical one.

XMAG makes the most sense for investors who already hold broad index funds and want to reduce their effective Mag 7 weighting without abandoning large-cap U.S. equities entirely, but anyone expecting to fully sidestep AI-driven market leadership should recognize that the fund’s own top holding, Broadcom, is itself a direct beneficiary of that same spending cycle.