Investors Hedge $17 Billion Against Big Tech, Driving Record Into Equal-Weight ETF

Wall Street’s biggest players moved to protect themselves against tech stock dominance in 2024, driving record cash into a fund that splits money evenly across all S&P 500 stocks.

The Invesco S&P 500 Equal Weight exchange-traded fund pulled in $17 billion last year, with $14.4 billion flowing in during the final six months alone, the Financial Times said, citing Morningstar data. The surge pushed the fund’s total assets above $72 billion, making it one of the 25 largest U.S. ETFs.

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Money poured in despite the fund’s weak performance. While the S&P 500 jumped 24% last year, the equal-weight version rose just 11%. The gap stems from the outsized impact of the Magnificent Seven tech stocks – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – which drove about half of the S&P’s gains.

“Investors’ biggest focus recently has been concentration risk, worries that the market is too top-heavy,” Manish Kabra, head of U.S. equity strategy at Société Générale, said to the Financial Times.

The fund rebalances quarterly, selling market leaders and buying laggards to maintain equal positions across all holdings. The strategy paid off in 2022’s tech sell-off but lagged in 2024’s tech rally.

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Traders also turned to derivatives to guard against tech stock drops. CME Group’s S&P 500 equal-weight futures contract, launched in February, now trades $2.4 billion worth of open positions.

“I think that woke some more clients up in terms of how to manage that risk and what kind of strategies they should put in place,” said Paul Woolman, CME’s global head of equity products, referring to tech stock volatility last summer.

The equal-weight rush marks part of a banner year for Invesco. Bloomberg data shows that the firm’s U.S. ETFs took in $86 billion in 2024, outpacing its previous record of $54 billion in 2021. This pushed Invesco into third place for ETF flows, behind only industry giants Vanguard and BlackRock.

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Some market watchers warn against the equal-weight approach. “Incorporating fundamentals in the assessment of each company would better serve investors than arbitrarily making them all equal weights,” Bryan Armour, director of passive strategies research at Morningstar, said to the Financial Times.

According to Rick de los Reyes, portfolio manager at T. Rowe Price, the shift could boost long-neglected market sectors. “There’s some excitement around the parts of the market that have been left behind and the view that you could finally start to see some strength,” he said.

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