Equal Sector Strategy Reduces Tech Concentration Risk

Information technology represented 34.4% of the S&P 500 at year-end 2025, creating concentration risk for investors with core equity portfolios heavily weighted toward mega-cap technology names, according to insights from SS&C ALPS Advisors. An equal sector investment approach offers a way to reduce this concentration while maintaining access to quality large-cap companies.

The ALPS Equal Sector Weight ETF (EQL) allocates approximately 9% to each of the 11 S&P 500 sectors by investing in equal proportions across Select Sector SPDR ETFs and rebalancing quarterly, according to the insights.

The strategy caps technology at approximately 9% of the portfolio, or less than one-third of its weight in the cap-weighted S&P 500, while maintaining exposure to sector leaders like Apple Inc. (AAPL), Nvidia Corp. (NVDA), and Microsoft Corp. (MSFT) through the Technology Select Sector SPDR ETF (XLK), according to the fund’s holdings.

The equal sector approach also addresses the opposite problem: sectors that receive minimal exposure in cap-weighted indexes. Four sectors — energy, materials, real estate, and utilities — each represented less than 3% of the S&P 500 at year-end, according to the insights. In EQL, these same sectors receive approximately 9% allocations each, providing investors with more balanced exposure across the entire economy

Equal Sector Strategy Gains Investor Interest

This balanced sector approach has attracted growing investor interest, with EQL pulling in $22.08 million in net flows over the past month and $125.53 million over the past year, according to ETF Database. The fund now holds more than $589 million in assets.

The strategy has delivered competitive returns, with EQL posting a 13.5% gain over one year, 15.6% annualized over three years, and 12.8% annualized over five years, according to ETF Database. The three-year and five-year figures exceeded the fund’s large cap blend category averages.

EQL rebalances quarterly to maintain equal sector weights and carries a 0.27% expense ratio after contractual fee waivers through March 2026, according to the fund’s fact sheet. The fund also provides a 2.42% trailing twelve-month yield.

Earnings growth is expected to broaden across sectors in 2026, which could benefit strategies offering balanced exposure rather than heavy concentration in mega-cap technology stocks, according to Nationwide’s chief market strategist Mark Hackett speaking to Reuters in late December.

For more news, information, and analysis, visit the ETF Building Blocks Channel.