Tech Jitters Could Highlight Perks of EQL
EQLโs main value is not that it โbeatsโ a cap-weighted benchmark in every market regime, but that it changes what drives the portfolio. By equal-weighting sectors instead of letting the largest companies dominate, the ETF turns sector balance into a deliberate design choice. For investors who worry that a narrow set of mega-caps can overwhelm index behavior, that structural shift is often the real reason to own the fund.
This also changes the rebalancing experience. Equal-sector portfolios must periodically restore sector weights, which can force the ETF to trim areas that have run ahead and add to areas that have lagged. That discipline can be useful in a long-term allocation, but it also means the fund is not meant to simply mirror the marketโs most crowded exposures. Investors should think of it as a rules-based implementation choice, not a neutral version of the S&P 500.
There is a trade-off in any concentration-reducing strategy: lower exposure to the biggest index weights can help diversification, but it may also leave the fund less aligned with whatever has been driving headline index returns. That makes EQL more relevant as a portfolio building block for investors who want broad equity participation without letting one sector dominate the outcome.
Cost and execution still matter. The expense ratio is modest, but it should be viewed alongside tracking behavior, bid-ask spread, and how often an investor expects to rebalance the position within a larger portfolio. In practice, the key question is whether the ETFโs sector-balancing rule improves portfolio fit better than a plain cap-weighted index fund would.
The AI/megacap growth trade isnโt dead. But price action on November 20 suggests evenย Nvidiaโsย (NVDA) recent earnings report may not provide enough near-term excitement to fuel the tech sector. That doesnโt mean investors forsake equities outright. Fortunately, more balanced ETFs such as theย ALPSย Equal Sector Weightย ETFย (EQLย ) can keep market participants invested while reducing tech-related risks.
The fund equally weights the 11 global industry classification standard (GICS) sectors. That means its weight to tech stocks is less than a third of what the cap-weighted version of the S&P 500 devotes to that sector.
Another way of looking atย EQL, at least over the near-term, is a trait that was once a headwind for theย ETFย โ low tech exposure โ is now an advantage. However, thatโs not the end of this ETFโs perks.
Myriad Benefits of EQL
As its name implies,ย EQLย equally weights sectors. That makes it a departure from many equal-weight ETFs, which typically apply equal weighting to stocks. EQLโs approach can bear fruit for long-term investors.
โBoth equal-sector and equal-stock weighting methodologies reduce the heavy concentration risk of the mega-cap companies in the S&P 500, however, equal-sector weighting provides an advantage by preserving the weights of the higher market-cap leaders within each sector while equal-stock weight tends to overemphasize the lower market-cap laggards within each sector,โย according toย ALPSย research.ย โEqual-sector weighting shows a better balance of returns between the top and bottom quartiles, relative to equal-stock weighting.โ
Remembering that past performance doesnโt guarantee future returns, advisors and investorsย consideringย EQLย should not ignore the fact that historical data confirms over long holding periods, equally weighting sectors has been the better bet relative to equally weighting individual securities.
EQLย offers end users another, arguably overlooked, benefit. As concentration increases in cap-weighted indexes, as is the case today, itโs possible that volatility will also rise because the indexโs balance is being disrupted by increased allocations to a small number of stocks.ย EQLย can reduce that risk.
Theย ETFย โprovides greater exposure to the bulk of the US large-cap universe, while demonstrating less volatility and smaller drawdowns than an equal-stock weighted portfolio on the S&P 500 that tends to witness greater peaks and valleys in performance caused by inordinate sector bets,โ addedย ALPS.
Home to nearly $526 million in assets under management,ย EQLย has an annual expense ratio of 0.27%, or $27 on a $10,000 investment.
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