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.
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