Why Investors Are Opting to Equal Weight Their Tech Exposure

Investors are reinstating positions in growthier segments of the market after a risk-off sentiment began emerging in July.

Investors can access the tech sector with the ALPS Disruptive Technologies ETF (DTEC), which utilizes a unique methodology, setting it apart from other funds offering tech exposure.

Tech stocks have begun rebounding in the past weeks, partially recouping the first half of the year’s losses. Better-than-expected earnings helped to propel the segment higher. DTEC has increased 8.2% over the past month; however, is still down 22.8% year-to-date, creating an attractive entry opportunity.

DTEC covers 10 different themes within the tech sector: healthcare innovation, the internet of things, clean energy and smart grid, cloud computing, data and analytics, fintech, robotics and AI, cybersecurity, 3D printing, and mobile payments, all with a focus on disruptive technologies and innovation, according to VettaFi. 

The index selects 10 companies from each theme according to a proprietary model and equally weights each security, effectively giving each theme and each company equal representation, according to VettaFi.

This methodology results in much more balanced exposure to the sector, which is notorious for being extremely concentrated in just a few mega-cap names. In market cap-weighted funds such as the Fidelity MSCI Information Technology Index ETF (FTEC) and the Vanguard Information Technology ETF (VGT), the top two names — Apple Inc (AAPL) and Microsoft — make up over 42% of each fund, according to VettaFi.

This is especially relevant in the current environment, as the most impactful losses in big tech earlier this year were from mega-cap companies, which are still off their highs by double digits.

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