With the Nasdaq 100 up 40% for the year, investors may struggle with the decision of holding onto big tech or cashing out and selling. Another option is considering an equal-weight strategy.
It’s easy to see how an investor would be hesitant to sell. Big tech has been fueling much of the 2023 rally. The fear of missing out on future gains is warranted. But there’s also the prospect of a looming recession. This could reverse the gains for big tech’s strong first half of the year.
In the meantime, big tech appears to have all the bullish momentum behind it. Eventually, the laws of market gravity will play out and what goes up must eventually come down. But for now, optimism is abound for big tech.
“An over $4 trillion big tech resurgence for the biggest technology companies drove the stock market’s strong first half of 2023, as investors pour boundless optimism into the artificial intelligence wave, leading to some questions of whether the broader gains will stick,” a Forbes article explained.
An Invesco Option for Equally Weighting Big Tech
Over-concentration in a fund can move the needle on performance significantly. If the fund’s holdings are concentrated on a few stocks with heavy allocations, the potential for volatility is high when the broad market, or specifically the tech sector experiences a reversal.
Given this, an equal-weight strategy can help smooth out the volatility by removing the risk of over-concentration. This strategy is inherent in the Invesco S&P 500 Equal Weight Technology ETF (RSPT ), which is based on the S&P 500® Equal Weight Information Technology Index.
Its market cap/style allocation as of June 28 is skewed towards large-cap blend, large-cap growth, mid-cap blend, and mid-cap growth. Tilting towards large and mid-cap can help mute volatility in a downtrend. This is opposed to funds that focus their allocations on small-cap holdings.
The risk of over-concentration is minimized with the largest holding, Palo Alto Networks, occupying just 1.71% of the fund’s assets. Additionally, investors can capture upside if big tech continues its run up higher through the rest of 2023 and potentially into 2024.
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