The antidote to concentration risk and an overcrowded boom is diversification into high-payout-ratio sectors like European banks and US financials — which offer 5-7% yields, low correlation to MAG7, and potential AI beneficiaries downstream.
Yurion argues the best defense against a crowded MAG7/AI trade is to diversify into sectors with high payout ratios — European banks (88% payout, 7% yield, 11% correlation to MAG7) and US financials (84% payout, 5% yield). These are potential downstream AI beneficiaries and offer income that protects against over-earning beta in a long-in-the-tooth secular bull market. ✦ AI generated
Yurion Timmer · The Compound · 2026-07-20 · original ↗
starts at this moment · 29:40
“How do you balance this idea of staying invested during a bull market with the understanding that trees don't grow to the sky?”
European banks, okay, uh are are they they are they are like one of the best assets right now. They are um only 11% correlated to the MAG7. They have a payout ratio of 88% which means you get almost every euro of earnings back to you. They have a yield of 7%. um and their payout is growing faster than the Max 7. ... And for me, the transition um could well be underway that you know the MAG 7 was yesterday's leader and tomorrow's leader will be the actually the downstream companies that benefit from this.
verbatim transcript · starts at 29:40
29:33one to listen to more. Is it the FOMO piece? Is and so I'm I'm curious how you think about this and I know you talked about this with some other sectors of the market that you're thinking of in terms of diversification like what do you think is is the way to invest during a boom time like this? >> Yeah. So I, you know, it's always important to be diversified. Can't get
29:51greedy. Um, it's always important to rebalance, right? Like a 6040 could turn into a 9010 if one out if one side is booming and the other is not and you never rebalance. And of course that would be a luxury problem because it tells you something is working well. But then if you have, you know, a 30% decline and you're 9010 instead of 6040, it's going to produce a bigger draw
30:15down. And so for me the good news these days is that you know for the last 15 years until two years ago or so um you know mega cap growth like mag 7 was the only game in town anywhere in the world. All right. If you went down cap you went value you went EHA you went EM you were like losing a significant amount of of of beta or alpha as the case may be. And
30:43we don't have that anymore. Right. If like if you if I look at uh around the world, one of the most boring sectors you can possibly think of, European banks, okay, uh are are they they are they are like one of the best assets right now. They are um only 11% correlated to the MAG7. They have a payout ratio of 88% which means you get almost every euro of earnings back to
31:10you. They have a yield of 7%. um and their payout is growing faster than the Max 7. And so again, that's not an endorsement. It's not investment advice, but you can find places to invest that are very compelling and are not like utilities where you just don't lose any money. Uh but they don't do anything to the upside. So there are those stocks and they're in EM, they're
31:36in developed markets. Just looking in the S&P at financials, they have an 84% payout ratio and a 5% yield. Uh, and they are potentially one of the biggest beneficiaries of the AI buildout because if you think about it, right, what do you need to build AI? You need data. And who has better data or more data than the big banks? They have millions and millions of pieces of of customers and