Equal Sector ETF Captures Market Broadening Beyond Tech

Core Viewpoint - The 2025 stock market rally was concentrated in mega-cap technology companies, but a broader rally is anticipated in 2026 as earnings growth expands to other sectors, prompting investors to seek balanced exposure across all market sectors [1]. Group 1: Sector Allocation and Strategy - The ALPS Equal Sector Weight ETF (EQL) allocates approximately 9% to each of the 11 S&P 500 sectors, significantly overweighting underperforming sectors that may benefit from market broadening [2]. - EQL automatically rebalances quarterly to maintain equal sector weights, providing a diversified investment approach [2]. - Energy and utilities, which represented only 2.89% and 2.35% of the S&P 500 respectively at year-end, receive approximately 9% allocations each in EQL, more than triple their weights in the cap-weighted benchmark [4]. Group 2: Growth Drivers and Market Trends - Surging electricity demand from artificial intelligence data centers is creating new growth drivers for the energy and utilities sectors, shifting the investment case beyond traditional defensive characteristics [5]. - The infrastructure sectors may benefit from the multi-year buildout required to support AI computing needs, with EQL providing substantially higher exposure to these sectors [6]. - Real estate, another underweighted sector in the S&P 500 at just 1.94%, receives approximately 9% allocation in EQL, positioning investors to benefit from potential property valuation support in a lower-rate environment [7]. Group 3: Performance and Investor Interest - The equal sector strategy has gained traction, with EQL attracting $22.08 million in net flows over the past month and $125.53 million over the past year, now holding over $589 million in assets [8]. - EQL posted a 13.53% gain over one year, 15.63% annualized over three years, and 12.78% annualized over five years, with a 0.27% expense ratio after fee waivers through March 2026 [9]. Group 4: Market Rotation Insights - December's market action indicated a potential sector rotation, with leadership broadening beyond technology as financials, materials, and industrials led the S&P 500, benefiting strategies with balanced sector exposure [10].