Every year at the Kentucky Derby, one horse enters Churchill Downs as the favorite to win the Garland of Roses. This horse comes into the race with the strongest odds, the most attention, and the highest expectations. But history tells a different story: favorites only win about a third of the time.¹ Even in a field where probabilities are carefully calculated and widely agreed upon, the “best” outcome fails more often than it succeeds. Markets can sometimes operate under this same illusion of certainty, yet favorites have historically been identified and relied upon for so much of the market (and its investors’) success.

In investing, the “favorite” might be seen as the mega-cap* leaders with the highest valuations and fastest growth. These have historically been the consensus trades that often dominate headlines, attract significant capital, and drive a disproportionate share of index performance. But like a Derby favorite, popularity and probability are not the same as certainty.

For the past several years, the world’s biggest tech stocks (often referred to as the Magnificent 7) have dominated markets, especially since the ChatGPT starting pistol kicked off the AI race.

The Magnificent 7 (the top seven companies by market cap) make up roughly a third of the value of the S&P 500, up from 12.5% just a decade ago.² It appears as though the market has chosen its favorites. Even though betting heavily on the favorite might feel like a safe bet, such overweighted exposure introduces potential concentration risk that can make the favorites (or at least those betting on the favorites) potentially more vulnerable to upsets.

As capital concentrates in a narrow group of market leaders, portfolios can become increasingly exposed to a single outcome. When those expectations are met, the results can be potentially strong. When they are not, the impact can be magnified. The more heavily investors have historically been positioned in the market’s “favorite,” the more meaningful the consequences when it underperformed.

Because it's more diversified and not reliant on a single sector, the S&P 500* historically weathers stock market volatility better than a highly concentrated and correlated group of “favorites” like the Magnificent 7. The Magnificent 7 generally haven’t been as resilient during periods of economic uncertainty. For example, in 2022, the S&P 500 declined 19.4% while the Magnificent 7 fell 41.3%.² Betting big on favorites can have potentially big payouts if you’re right, but possibly disastrous losses if you’re wrong. 

All-sources wagering for the Kentucky Derby last year set a new all-time record of $473.9 million.³ As of late April 2026, the total market cap of the S&P 500 was around $65 trillion.⁴ With roughly a third of the value concentrated in seven companies, that’s a lot riding on a handful of horses.

We believe a more disciplined approach focuses not on selecting a single winner, but on structuring exposure more broadly. In the Derby, experienced bettors often look beyond the favorite, spreading risk across multiple outcomes rather than relying on one result. The goal is not simply to be right, but to manage the consequences of being wrong.

Rather than zeroing in on the market’s favorites of the moment, portfolio construction can be designed to account for a range of potential outcomes over time. TrueShares TrueOutcome ETFs reflect this philosophy. By defining elements such as downside exposure and upside participation in advance, they allow investors to potentially move beyond prediction and toward intentional positioning.

The lesson of the Kentucky Derby is not that favorites should be avoided, just that the outcomes are uncertain even with really strong signals. Favorites don’t always win. For investors, success is not about picking winners consistently and going all in, but is instead about building resilient portfolios that can perform across different scenarios.

In both racing and investing, discipline and structure matter more than the predicted odds.

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*Diversification does not eliminate the risk of experiencing investment losses.

1. https://sports.yahoo.com/article/journalism-2025-kentucky-derby-favorite-103000848.html 
2. https://www.fool.com/research/magnificent-seven-sp-500/ 
3. https://ir.churchilldownsincorporated.com/news-releases/news-release-details/sovereignty-wins-151st-running-kentucky-derby-presented-woodford 
4. https://www.slickcharts.com/sp500/marketcap 

*Definitions

Mega-cap: a designation for the largest companies in the investment universe as measured by market capitalization. While the exact thresholds change with market conditions, mega cap generally refers to companies with a market capitalization above $200 billion. (Source: Investopedia)

S&P 500: The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. You cannot invest directly in an index.