These Diversification Strategies Are Winning in 2026

It may be little more than two months old, but 2026 is already proving why diversification matters.

One year ago, stock investors were still enamored with the artificial intelligence trade. Rallying mega-cap stocks—several of which qualified as AI plays—were driving the US stock market to new highs. As a result, the US stock market was more heavily concentrated in its 10 largest names by the end of 2025 than it had been since 1932.

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Fast forward to today. Investors have grown concerned about how much money companies are spending on AI and what toll AI may take on various industries. Those worries have led to the rise of the “anything but AI” trade and to a rotation in the US stock market—and to in-the-red returns for most mega-cap names so far in 2026.

Mega-Cap Stock Returns: 2025 Versus Today

In January, we suggested five asset classes for investors to consider if they wanted to diversify away from the market’s mega-cap stocks and the AI trade. Here’s how those assets are doing so far in 2026.

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5 Smart Ways to Diversify Your Portfolio in 2026

High-Quality Bonds Are Winning in 2026

Higher-quality US bonds—often considered to be a great diversifier for US stocks—have edged out US stocks for the first two months of 2026.

Of course, over long periods, bonds will underperform stocks. So, don’t overdiversify into them if your investment goal is decades away. But as this year proves, even a small position in bonds can provide diversification benefits.

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International Stocks Maintain Their Edge

After underperforming US stocks for several years, international stocks outperformed US stocks in 2025, and they’ve continued to do so in 2026.

The ongoing international-stock revival in 2026 isn’t entirely surprising, given that the performance of international stocks had lagged that of US stocks for so long; non-US stocks had more gas left in the tank. Moreover, non-US stock markets are less tied to technology and the AI trade and thereby are benefiting this year from the “anything but AI” sentiment.

Value Stocks Shine in 2026

Value stocks are staging a comeback this year.

Value indexes underweight the technology sector when compared with the broad market, and, as a result, provide additional sector diversification. And extra exposure to the rallying industrials and energy sectors has certainly contributed to value’s performance edge this year.

Small-Cap Stocks Are Having a Day

Small-cap stocks began to revive last November and have extended their run into 2026.

Like international and value stocks, small-cap equities have lagged the broad market for long stretches, suggesting that they may still have more room to run. In fact, small-cap stocks as a group still look undervalued to Morningstar.

Dividend Stocks: Back on Top

Dividend stocks have also provided diversification this year. “Dividend-payers, which skew toward old economy sectors, allow investors to participate in the equity market without as much reliance on the AI theme,” says Morningstar indexes strategist Dan Lefkovitz.

These income-producing assets typically cluster in the utilities, consumer, healthcare, industrials, and financials sectors. And these sectors often perform well when tech doesn’t.

Will the US Stock Market Rotation Persist?

Of course, there’s more of 2026 in front of us than behind us, and a lot can and likely will happen before we close the books on this year. Perhaps the US stock market rotation will persist, and we’ll continue to see value stocks, small-cap equities, and the other asset classes here thrive. Or two months from now, we might be talking about a tech stock bounceback or mega-stock revival.

“The future is inherently uncertain,” reminds Lefkovitz. “As investors, all we can do is spread our bets and build portfolios to weather different scenarios. So far in 2026, diversification has been a winning strategy.”