For years, a small group of mega‑cap technology companies set the pace for the market—and for many active managers. That grip has loosened in 2026. Market leadership has broadened, with previously dominant names losing momentum and a wider mix of sectors now driving returns. Managers who stayed diversified or were willing to look beyond the market’s biggest names are seeing the benefits. Those who didn’t are being left behind.The Magnificent Seven stocks—Apple AAPL, Amazon.com AMZN, Alphabet GOOGL, Meta META, Microsoft MSFT, Nvidia NVDA, and Tesla TSLA—have generally lagged the broader market so far in 2026. The Morningstar US Target Market Exposure Equal Weighted Index’s negative 1.6% return through March 31 outpaced its cap-weighted counterpart’s negative 4.8% return. That’s a reversal from 2023 and 2024, when cap‑weighted returns outpaced equal-weighted returns by double digits. This shift has reshaped fund performance. Managers who leaned heavily on mega-cap growth have struggled, while those with bets outside Big Tech have enjoyed success.Mega‑Cap Tailwinds FadeThe fading strength of mega‑cap technology stocks has shown up clearly in fund results. Heavy artificial intelligence spending has raised concerns about overinvestment and future returns, and after years of strong performance, investors are increasingly questioning how much upside remains. Funds with concentrated bets in these names have suffered the most. Principal Blue Chip PBLAX, for example, was dragged down by its 15% position in Microsoft and finished in the bottom decile of the large-growth Morningstar Category. Other strategies with sizable stakes in the Magnificent Seven stocks have also lagged. Funds that avoided or were underweight these stocks, such as AMG Renaissance Large Cap Growth MRLSX, have fared much better. Both strategies landed in the top quartile of the large-growth Morningstar Category for the year to date through March. The shift hasn’t been limited to large caps. Smaller companies are starting to regain ground after years stuck in the market’s shadow. The Morningstar US Small Cap Index’s roughly flat return outpaced the Morningstar US Large Cap Index’s negative 6% return in the first quarter of 2026, a notable reversal from the long stretch in which mega‑caps dominated.Yet, even as the Magnificent Seven stumble, other tech stocks have surged.The AI Trade Giveth and Taketh AwayAI is still driving markets, but the winners have changed. Investors have rotated away from software and toward the infrastructure behind AI, including semiconductors, electrical equipment, and data-center-related firms. Growth strategies with heavy software exposure, such as Brown Capital Management Small Company BCSIX and Morgan Stanley Institutional Global Franchise MSFBX, have lagged. Meanwhile, funds with exposure to AI infrastructure have pulled ahead. Virtus Ceredex Mid-Cap Value Equity SMVTX ranked in the top 3% of its category in the first quarter of 2026, helped by positions tied to the AI‑driven data‑center buildout. Vertiv VRT, up roughly 55% in 2026 through March, and Corning GLW, which has climbed about 56% for the year to date, have been among the fund’s strongest contributors.Other Sectors Reclaim a RoleAs technology’s dominance has faded, other sectors have stepped in. Energy has been one of the standout performers. Oil prices surged early in the year amid geopolitical tensions and supply concerns, lifting energy stocks by almost 40%. Because energy remains a relatively small weighting in most indexes, funds with even modest positions in the sector had a chance to stand out. Fidelity Capital Appreciation FDCAX and GQG Partners Global Quality Equity GQRPX, both with above-average energy stakes, ranked among the top decile of first-quarter performers in their respective categories. Meanwhile, many laggards in large-cap categories held little to no energy exposure as of their most recent publicly available portfolios.Aerospace and defense stocks have also rallied, benefiting from rising geopolitical tensions and increased defense spending expectations. Funds with double-digit exposure to these areas, such as Invesco Discovery OPOCX and Artisan International APHIX, have benefited from this tailwind, ranking in the top 5% of their respective categories for the year to date.When the Market Shakes, Boring WorksVolatility has also shifted investor preferences toward more defensive areas of the market. Consumer staples and dividend-paying stocks have quietly outperformed as investors sought stability and income. The dividend yield factor has been one of the strongest-performing so far this year, with the Morningstar US High Dividend Yield Index beating the broader market by almost 10%. Funds built around these traits have held up well. AQR Large Cap Defensive Style AUEIX has outperformed many peers. Dividend-focused strategies such as Columbia Dividend Opportunity CDOZX and Lord Abbett Dividend Growth LAMAX have also delivered strong relative results.International Stocks Continue to ShineBroadening leadership isn’t just a US story. International equities, which already outperformed in 2025, have extended their momentum into early 2026, with the Morningstar Global ex-US Target Market Exposure Index outpacing the Morningstar US Large Cap Index so far this year. Part of this resilience reflects the indexes’ composition: International benchmarks carry meaningfully less exposure to the technology stocks that have weighed on domestic equity returns, with tech making up about 16% of the Morningstar Global ex-US Target Market Exposure Index versus roughly 38% of the Morningstar US Large Cap Index.For active managers, this backdrop has rewarded US-focused funds with international exposure, particularly those leaning into regions tied to the global AI supply chain outside the US.