Of the variety of market risks looming about portfolios, concentration risk deserves special mention. Inflation provides a persistent, stubborn specter, and geopolitical issues pose particularly painful, but perhaps smaller, risks. Concentration risk, however, comes with the particular twist of also providing benefit, with just a handful of key names driving markets. For investors worried about megacap concentration risk, however, an equal-weight ETF like EQL could intrigue.
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EQL, the ALPS Equal Sector Weight ETF, launched back in 2009. Charging a 25 basis point fee, the equal-weight ETF tracks the NYSE Select Sector Equal Weight Index. That approach involves the fund using the SPDR suite of ETFs to create an equal-weight approach to the various economic sectors. For example, the fund invests in ETFs like the Industrial Select Sector SPDR Fund (XLI) and the Technology Select Sector SPDR Fund (XLK) as building blocks to construct its equal sector weights.
That approach presents a very notable alternative to market-cap-weighted strategies like the SPDR S&P 500 Trust (SPY). While those funds weight holdings based on their market capitalization, EQL holds tight to its equal approach to energy, industrials, tech, and other areas as described above.
Together, that has helped the equal-weight ETF perform well over the long term. On a five-year time scale, the ETF has returned 14%, per ETF Database. That outperformed both the ETF Database Category and FactSet Segment averages at 6.5% and 3.6%, respectively. EQL has returned 6.6% YTD, as well, beating its FactSet Segment average in that time.
Leaning into a fund like EQL in the months ahead could prove a shrewd move if tech were to drop. Where market-cap-weighted portfolios would suffer significantly, EQL’s limited tech allocation would protect it. What’s more, it could rely on more defensive sectors to provide steadier performance. Looking at the back half of 2025, moving some equity assets to an equal-weight ETF may provide a compelling opportunity amid megacap risk.
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