Defray Concentration Risk With This Equal-Weight ETF

Owing in large part to the seemingly undaunted ascent of the Magnificent Seven stocks, concentration risk is a frequently discussed topic. It’s also one that feels highly correlated to the price action of mega-cap growth stocks.

There’s validity in that assessment. After all, the top 10 domestic stocks by market value now account for 35% of the broader market. That’s about double the percentage seen just a decade ago. That top-heavy situation could highlight benefits with ETFs such as the ALPS Equal Sector Weight ETF (EQL). With 2026 right around the corner, EQL could be an ETF worthy of investors’ consideration here and now.

“Such narrow market leadership creates vulnerability,” noted Morningstar’s Michael Budzinski. “If any of these leaders stumble—whether due to earnings misses, regulatory changes, or other shocks—broad index performance can quickly reset, erasing hard-won gains. In such environments, investors should consider diversifying beyond the dominant names.”

History Confirms Validity of EQL Approach

In investing, people often say that history doesn’t always repeat, but it rhymes. As it pertains to the benefits offered by EQL, it’s advice worth remembering. So, artificial intelligence (AI) stocks may not be in a bubble today. However, past instances of high market concentration led to increased volatility and sharp pullbacks.

“The dot-com bubble is perhaps the clearest example,” observed Budzinski. “Between 1997 and 2000, the share of US market capitalization held by the 10 largest stocks surged to 24% from 15%, driven by soaring valuations in technology names like Microsoft, Cisco Intel AOL, and Yahoo. But when profit expectations failed to materialize and capital dried up, sentiment turned sharply, wiping out trillions in market value and exposing how fragile the rally had been beneath the surface.”

There’s something else for advisor and investors to keep in mind, specifically regarding EQL. The ALPS ETF differs from many of its equal-weight competitors because it equally weights sectors, not stocks. Over time, that methodology has generated superior returns relative to competing ETFs that apply equal weighting to holdings, not sectors. That benefit adds to the case for EQL — one that’s exceedingly relevant as the concentration risk conversation increases in frequency.

“Regardless, we think investors should be mindful of how much of their wealth depends on a single theme or group of stocks,” concluded Budzinski. “When the bulk of market gains are driven by just a few large names, portfolios become more exposed to common risks. Even if concentration doesn’t guarantee a downturn, it erodes diversification benefits and makes markets more vulnerable to sentiment reversals.”

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