Many investors are looking to an equal weight strategy to get more balanced exposure to the technology sector.
The (RYT ) has had strong inflows as some cap-weight funds covering the same sector have seen net outflows. The technology sector was the best-performing sector in May, but as fundamentals remain constructive, many investors are continuing to add exposure.
RYT has seen $229 million in four-week inflows and $545 million in year-to-date flows. Meanwhile, the cap-weighted (XLK ) has seen $100 million in net outflows over a four-week period and $2.4 billion in net outflows year to date.
“Investors continue to see growth potential for information technology stocks. Yet, some are concerned how concentrated market-cap strategies are toward Apple and Microsoft,” Todd Rosenbluth, head of research at VettaFi, said. “An equally weighted approach spreads the risk around but maintains reward potential by owning more of the more moderately sized companies.”
How an Equal Weight Strategy Can Enhance Technology Sector Exposure
An equal weight strategy is particularly impactful in the top-heavy technology sector. The top five names in the cap-weighted information technology sector comprise 66.2% of the sector by weight.
The technology sector ranks second among all sectors for having the greatest total weight of the largest five companies, trailing only communication services, according to S&P Dow Jones Indices.
RYT is based on the S&P 500 Equal Weight Information Technology Index. RYT’s underlying index gives component companies equal allocations at each quarterly rebalance. This results in exposure that is considerably more balanced than alternative products.
RYT has increased 10.0% in the past month compared to the S&P 500 Index’s increase of 6.9% during the same period, according to YCharts. Over a six-month period, RYT has slightly underperformed the S&P 500, both increasing 3.5%. RYT is still down -20.1% year to date, making now an optimal time to allocate for investors who expect a less hawkish Fed going forward.
The S&P 500 Equal Weight Information Technology Index covers the following industries: 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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