Equal Weight ETFs Poised to Outperform if Big Tech Earnings Disappoint

Equal weight sector ETFs are poised to hold up better than their market cap-weighted peers should Big Tech companies report disappointing third-quarter earnings. 

Investors are eagerly awaiting earnings reports this week from Big Tech companies Alphabet (GOOGL), Microsoft (MSFT), Intel (INTC), Apple (AAPL), Meta Platforms (META), and Amazon (AMZN). What these companies have to say about their outlook and plans for the rest of the year amid challenging conditions will have a heavy influence on the market this week, Chris Versace and Mark Abssy wrote in a Smart Investing newsletter on October 24.

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. If a Big Tech company reports disappointing last quarter earnings, sending its stock into a tailspin, the impact will be less pronounced in an equal weight fund.

“A more equally weighted approach is less dependent upon one or two companies reporting strong results,” said Todd Rosenbluth, head of research at VettaFi.

Microsoft, which reports earnings on Tuesday, and Apple and Intel, which both report on Thursday, are holdings 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, which report on Tuesday and Wednesday, respectively,

Finally, Amazon (AMZN), which reports earnings on Thursday, can be found 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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