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MarketsJan 23, 2025

Investors Are Embracing Equal-Weight ETFs To Hedge Against Tech Concentration In S&P 500, Ride the “Rise of the Rest”

Diversification Pivot

Noah Weidner

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Since the start of Q4 2024, investors have poured record amounts into S&P 500-equal weight ETFs like the Invesco S&P 500 Equal Weight ETF, which has seen $10.5B in net flows since the start of Q4 2024. It’s a product of a bifurcated strategy among cautious but optimistic investors juggling the market’s rich valuations and promises of strong earnings growth. Rather than sell everything and run for the hills, equal-weight funds have stood out as one way of managing risk and achieving a more balanced portfolio.

The push into equal-weight funds comes as a record share of the US stocks are dominated by just a few companies, mostly tech — which took on the heaviest losses during the 2022 downturn and are most likely to be hammered if markets take a turn for the worst.
At the same time, investors don’t want to miss the “rise of the rest,” as stocks outside of tech could catch up this year. Analysts tracked by FactSet forecast earnings to rise 14.8% YoY in 2025.

Is it worth the weight? Although tech remains top of mind going into 2025, analysts are looking forward to other industries catching up with the broader index as revenues and profits improve in sectors like consumer discretionary, utilities, and healthcare. In the event that the broader index strengthens from these fundamentals, an equal-weight strategy could outperform the base index and peel back some of the concentration risk in tech-heavy names, especially as their earnings growth is expected to begin slowing.