Big tech earnings are in the spotlight this week and next as investors anticipate fourth-quarter results.
Investors are awaiting fourth-quarter results from big tech companies Microsoft (MSFT), which reports on Tuesday after market close, and Meta Platforms (META), which will report on February 1, and Alphabet (GOOGL), Apple (AAPL), and Amazon (AMZN), which will release their earnings on February 2.
If big tech’s fourth-quarter earnings disappoint markets – as they did last quarter – equal weight sector ETFs are poised to hold up better than their market cap-weighted peers.
Equal weight sector ETFs are poised to hold up better than their market cap-weighted peers if a big tech giant reports disappointing fourth-quarter earnings, sending its stock into a tailspin. An equal weight approach is particularly impactful for big tech companies, as they tend to dominate market cap-weighted funds and have an outsized impact.
“While sector fund investors receive some diversification benefits, if you own a market cap weighted fund for your clients there is concentration risk that earnings will be weak for a key constituent,” Todd Rosenbluth, head of research at VettaFi, said. “This is why many are looking to equally weighted sector strategies.”
Microsoft and Apple can be found in the Invesco S&P 500 Equal Weight Technology ETF (RYT).
The Invesco S&P 500 Equal Weight Communication Services ETF (EWCO) holds Alphabet and Meta Platforms,
Finally, Amazon (AMZN) is a constituent in the Invesco S&P 500® Equal Weight Consumer Discretionary ETF (RCD).
RYT, EWCO, and RCD are all equal weight sector ETFs, meaning that component companies are given equal allocations at each quarterly rebalance. Equal weighting can provide diversification benefits and reduce concentration risk. This results in exposure that is considerably more balanced than other alternatives, and a methodology that many investors believe will add value over the long haul.
RYT, EWCO, and RCD each charge a 40 basis point expense ratio.
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