It’d be hasty to write obituaries on the technology sector. But by its lofty standards, the group struggled in January. Yes, there were credible reasons for that, including the DeepSeek news out of China and tariff talk in the U.S. Tech’s January lagging of the S&P 500 was the group’s widest since 2016. As of Feb. 12, the S&P Technology Select Sector Index is up just 1.4% YTD versus 2.9% for the S&P 500. As highlighted by a YTD gain of 3.9%, the ALPS Equal Sector Weight ETF (EQL) is doing better than both tech and the broader market.
EQL, which turns 16 years old in July, follows the NYSE Equal Sector Weight Index. As its name implies, that benchmark equally weights the 11 sectors represented in the S&P 500 when it rebalances. So today, EQL’s tech exposure is just under 9% compared to 31.38% in the cap-weighted S&P 500.
EQL Advantages Reemerging
The equal-weight methodology is believed to have a value bias. That means an ETF like EQL can lag the broader market when growth stocks are leading. That was the case in recent years. But the time could be right for investors to reassess EQL’s benefits.
For starters, tech’s performance to begin 2025 isn’t bad, per se. It’s merely disappointing relative to recent history. However, it’s not etched in stone that broader benchmarks need tech leadership to move higher. In a scenario where stocks garner upside without tech leadership, ETFs like EQL can regain renewed favor. Second, some of the sector-level benefits of the Federal Reserve’s 2024 rate cuts are just starting to appear. That could be another plus for EQL.
“Recall that the Federal Reserve cut its benchmark rate by a full percentage point in the fourth quarter of 2024 before pausing on further cuts. Now, this move is beginning to stimulate parts of the economy, which is settling into a ‘soft landing’ of slower-but-steady growth and cooling inflation,” noted Lisa Shalett of Morgan Stanley.
Following a disappointing January by the Magnificent Seven stocks, some professional investors are paring exposure to that group. As Shalett points out, some of that capital is flowing into more value-oriented groups like financial services and healthcare. That trend could benefit strategies such as EQL.
“Investors should consider adding exposure to cyclical stocks like financials, energy, domestic manufacturers and consumer services,” concluded Shalett.
For more news, information, and analysis, visit the ETF Building Blocks Channel.
