Why an Equal-Weight ETF Strategy Makes Sense in a Tech-Heavy Market

Since the artificial intelligence wave accelerated through 2023, a peculiar market dynamic has emerged. A small cluster of mega-cap technology companies has soared while the broader market remains more muted. This concentration creates a real dilemma for investors sitting on $2,000 to deploy: standard index strategies may no longer offer the balanced exposure they once did. The answer increasingly lies in reconsidering how you build your ETF portfolio.

The Structural Problem with Concentration

When AI fever took hold in 2023, it did more than just boost certain stocks—it fundamentally distorted the architecture of traditional index funds. Nvidia’s 1,200% surge since late 2022 sits at the center of this story, climbing to a market capitalization exceeding $4.75 trillion. Microsoft, Amazon, Alphabet, and Broadcom followed similar trajectories, though none quite matched the chip giant’s explosive performance.

Here’s the uncomfortable reality: these five companies, along with just two others—the so-called “Magnificent Seven”—now drive roughly one-third of the S&P 500’s total gains since 2023. More telling still, these seven names collectively represent 39% of the index’s total market value. For investors using conventional cap-weighted index ETF products, this creates a hidden vulnerability.

Consider the numbers. In cap-weighted funds like the SPDR S&P 500 ETF (SPY) and Vanguard S&P 500 ETF (VOO), Nvidia alone claims over 8% of portfolio assets. Microsoft and Apple each command nearly 7%. Meanwhile, technology stocks overall comprise 36% of these traditional portfolios. This concentration leaves typical index investors dangerously exposed should the artificial intelligence narrative lose momentum or face a meaningful correction.

The Equal-Weight ETF Alternative

The Invesco S&P 500 Equal Weight ETF (RSP) operates under an entirely different principle. Rather than weighting holdings by market capitalization, it maintains nearly identical positions in every S&P 500 constituent—each typically representing around 0.2% of fund assets. The structural difference is profound.

This straightforward rebalancing approach accomplishes two important outcomes simultaneously. First, it dramatically reduces concentration risk. Instead of betting that Nvidia, Microsoft, and their peers will continue their dominance, you’re maintaining a more evenly distributed wager across all market segments. Second, it naturally rebalances sector exposure in a healthier way. While tech represents 36% of traditional cap-weighted index products, the equal-weight approach pares that down to approximately 15%. Conversely, industrial stocks jump from 8% in conventional index ETFs to nearly 16% in the equal-weight vehicle, providing more meaningful participation in sectors potentially positioned for significant outperformance.

The Trade-Off You Need to Understand

Honesty demands acknowledging the strategy’s downside. If the artificial intelligence revolution continues accelerating and mega-cap tech stocks keep surging higher, RSP will likely underperform both SPY and VOO. That’s the cost of your defensive positioning. Those gains-focused investors who believe in the unstoppable march of AI advancement might reasonably choose to stick with traditional cap-weighted index ETF products.

However, the market rarely moves in one direction indefinitely. The S&P 500 currently trades at a price-to-earnings ratio of 26 times trailing earnings—substantially inflated by the concentration in technology names. This suggests meaningful risk alongside opportunity. A balanced approach might involve allocating your $2,000 to an equal-weight index ETF while separately building positions in individual AI-related stocks or AI-focused ETF products you believe in most strongly.

A Practical Path Forward

The mistake to avoid now is inaction. Ignoring the obvious reality that market valuation has become dangerously tilted toward a handful of stocks represents a real portfolio risk. Your $2,000 deserves thoughtful deployment, not passive acceptance of market distortions.

An equal-weight ETF strategy won’t guarantee market-beating performance. History shows that stock-picking, even by seasoned professionals, typically underperforms the broad market over extended periods. But building a more balanced index foundation while maintaining separate exposure to areas where you see genuine growth potential represents a genuine middle path—one that costs nothing in implementation expenses yet addresses the structural vulnerabilities that concentrated index portfolios face.

The 2023 AI boom created winners and risks in equal measure. How you position yourself—whether clinging to concentration or embracing balance—will significantly influence whether you participate in future gains or absorb unexpected losses.