Lingering concerns about concentration risk in supposedly diverse cap-weighted domestic equity benchmarks could foster a new wave of interest in equal-weight strategies, including the ALPS Equal Sector Weight ETF (EQL).
EQL, which turned 16 years old last month, follows the NYSE Equal Sector Weight Index. That gauge is easy for investors of all skill levels to understand because it holds the 11 Sector SPDR ETFs in equal proportion. It rebalances on a quarterly basis.
So one way of looking at the $534.1 million EQL is that it offers investors sector-level diversity at a time when that feature is increasingly hard to come by in many traditional broad market funds that weight components by market capitalization. For example, cap-weighted S&P 500 ETFs currently allocate about 34% of their rosters to tech stocks, or more than the funds’ next-three-largest sector weights combined.
EQL Pertinent, Offers Value
For investors looking for a more diverse sector-level idea, EQL is always a relevant consideration. But the ETF’s pertinence is enhanced today because many of the stocks, including the Magnificent Seven, that command significant weights in the cap-weighted S&P 500 are considered richly valued.
“Index concentration has returned with a vengeance: The S&P 500’s 10 largest companies by market capitalization now account for more than 34% of its total market cap, and just five of the so-called Magnificent 7 mega-cap tech stocks have gained in 2025,” noted Morgan Stanley. “The ‘Mag 7’ are now as expensive relative to all other S&P 500 index constituents as the biggest stocks were at the peak of the dotcom bubble.”
The bank adds that such high levels of concentration can exacerbate drawdowns and heighten volatility. Speaking of drawdowns and volatility, EQL’s worst drawdown over the past three years was 330 basis points better than that of the cap-weighted S&P 500, while the ETF’s annualized volatility over that span was 230 basis points below that of the traditional S&P 500.
There’s another reason EQL is a relevant consideration here and now. While the Magnificent Seven garner plenty of attention and loom large in market-value-weighted benchmarks, the reality is the companies don’t account for a correspondingly large chunk of S&P 500 profits. Said another way, EQL may be a better avenue for tapping into the breadth of the S&P 500 profit stream.
“In particular, it’s important to note that as these tech giants continue to spend heavily on data centers and other generative AI infrastructure, they account for only about 20% of total S&P 500 company profits,” added Morgan Stanley.
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