While the expectation is that the tech sector will eventually rebound from a 2022 to forget, it can still be subject to heavy volatility as it implements cost-cutting via layoffs. That’s especially the case since big tech names occupy a sizeable portion of the S&P 500, which warrants an equal-weight strategy.
Layoffs can be especially disconcerting to investors because they could portend to forthcoming weakness in the sector. Many big tech names resorted to layoffs in 2022 as a cost-cutting measure with the expectation that corporate profits would suffer amid rising inflation.
A lot of the staff reduction comes after tech companies were the toast of the town during the early days of the pandemic. With social distancing measures in place, a heavier reliance on tech companies translated into increased hiring to fill this demand.
“In the past month alone, tech companies have cut nearly 60,000 jobs, reversing a hiring spree that surged during the pandemic as millions of Americans moved their lives online,” a CBS News report noted.
Now, the air is coming out of the proverbial tires with inflation expected to, as mentioned, put a dent into corporate profits. At some point, the tech industry will turn around, but investors bargain-hunting in the tech sector may want to approach with caution — an equal-weight strategy can help with that.
An Equal-Weight ETF for Big Tech
A convenience of using an equal-weight strategy is that it essentially incorporates a volatility management tool, and when you tie it into an exchange traded fund (ETF), it also offers convenient exposure. That’s all available in one ETF: the Invesco S&P 500 Equal Weight Technology ETF (RYT).
Per its fund description, RYT simply tracks the S&P 500 Equal Weight Information Technology Index. Component companies in the index are given equal allocations at each quarterly rebalance, disallowing overconcentration in a few stocks.
As a result of this strategy, exposure is more balanced, giving investors the opportunity to capture upside in tech names in the S&P 500 while also limiting the downside should volatility strike. This is especially helpful in the tech sector, which can experience heavy market fluctuations at times.
The S&P 500 Equal Weight Information Technology Index covers a large swathe of tech-related industries. These areas include the following: internet equipment, computers and peripherals, electronic equipment, office electronics and instruments, semiconductor equipment and products, diversified telecommunication services, and wireless telecommunication services.
For more news, information, and analysis, visit the Portfolio Strategies Channel.