Elevated geopolitical tensions and policy uncertainty are creating higher cross-asset volatility in 2026, driving sharp market rotations that expose concentration risks in traditional portfolios, according to ALPS Q2 2026 Market Themes to Watch.
Key Takeaways:
- EQL attracted $65.52 million year-to-date, with equal sector weighting reducing concentration risk.
- SMTH drew $347.89 million in flows with flexible allocation across fixed income sectors.
- MNBD offers tax-exempt exposure with capital preservation focus for volatility management.
Many core portfolios remain heavily overweight in a handful of megacap sectors, particularly technology. The largest sectors are often the most sensitive to shifting trade policies and global conflict, per ALPS. Three ALPS funds address this environment through reduced sector concentration in equities and actively managed, risk-aware fixed income exposures.
To address equity concentration risk, the ALPS Equal Sector Weight ETF (EQL) has posted a 9.1% year-to-date return and attracted $65.5 million in net flows year-to-date, according to ETF Database. The fund returned 5.6% over the past month.
Unlike the S&P 500, which can be dominated by a few sectors, EQL provides equal-weighted exposure to all 11 S&P sectors through a fund-of-funds approach. The fund holds $694.4 million in assets under management with a 0.27% expense ratio, per ETF Database.
EQL’s top holdings include the State Street Technology Select Sector SPDR ETF (XLK) at 10.6%, the State Street Materials Select Sector SPDR ETF (XLB) at 9.5%, the State Street Consumer Discretionary Select Sector SPDR ETF (XLY) at 9.4%, the State Street Real Estate Select Sector SPDR ETF (XLRE) at 9.3%, and the State Street Industrial Select Sector SPDR ETF (XLI) at 9.2%, according to ETF Database.
This strategy reduces mega-cap and single-sector concentration, ensuring a downturn in one geopolitical-sensitive area doesn’t disproportionately impact the portfolio.
Active Bond Funds Round Out Risk-Aware Approach
On the fixed income side, the ALPS Smith Core Plus Bond ETF (SMTH) offers actively managed core-plus fixed income exposure, flexibly allocating across government, corporate, and securitized sectors to navigate credit volatility. The fund has attracted $347.9 million in net flows year-to-date. In just over the past month, it has attracted $79.9 million, according to ETF Database.
SMTH returned 0.57% year-to-date and 0.42% over the past month. It holds $2.67 billion in assets under management with a 0.59% expense ratio, per ETF Database.
For tax-sensitive investors, the ALPS BBH Intermediate Municipal Bond ETF (MNBD) provides actively managed intermediate municipal bond exposure seeking tax-exempt returns during market stress, according to ALPS. Managed by Brown Brothers Harriman, the fund focuses on capital preservation.
MNBD returned 1.2% year-to-date and 0.65% over the past month. It attracted $11.8 million in net flows year-to-date. The fund holds $55.1 million in assets under management with a 0.44% expense ratio, per ETF Database.
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