The overweight characteristic is not limited to tech ETFs. For example, General Electric (NYSE: GE) is the largest holding in the Industrial Select Sector SPDR (NYSEArca: XLI), with an 11% weighting. On the other hand, investors can use an equal weight methodology to reduce large allocations to one stock, such as the Guggenheim S&P 500 Equal Weight Industrials ETF (NYSEArcac: RGI), which allocates less than 2% to GE.
However, investors should also know that a large single stock holding is not necessarily bad since it could help lift an ETF in good years. In the year leading up to September 2012, Apple rallied to its all-time high, which helped XLK rise 30% in, compared to RYT’s 19% gain.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.