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Investors have poured more money into a fund that spreads its assets evenly across the S&P 500, as concerns grow that Wall Street has become too reliant on a handful of tech giants.
The Invesco S&P 500 Equal Weight exchange-traded fund took in about $14.4bn in the second half of 2024, according to data from Morningstar, as investors hedged against the management of large-scale technology prices.
The move took the fund’s total assets up to $17bn for the year and comes after consecutive years of the fund underperforming the S&P. Analysts say it highlights how worried investors are about the shadow cast by Magnificent Seven tech. stocks – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.
Last year the S&P rose 24 percent, with seven accounting for half of the index’s gains, according to S&P Dow Jones Indices. The equity-weighted index rose just 11 percent as its quarterly premium favored lower-growth stocks.
“The main concern for investors recently has been the risk of depression, the concern that the market is too heavy,” said Manish Kabra, head of US equity strategy at Société Générale. He expects to see double-digit earnings growth at most major tech companies this year.
“If that happens, you don’t need to be on the defensive,” he said, “many people I meet point to the weighted index that gained 11 percent last year and say it’s reasonable investing there. than expecting a 20-plus return (from the market-weighted S&P 500) every year.”
The Invesco fund sells S&P leaders and buys its laggards every quarter when it balances, giving each an equal share of the fund’s assets. This trend was beneficial in 2022, as the largest stocks in the index took the blame for the sale that year.
Despite its underperformance, the fund has amassed more than $72bn and made it one of the 25 largest US ETFs by total assets, according to Morningstar. That index topped the best ETF for inflows of about $12.8bn by 2023, according to Morningstar.
Investors are also turning to derivatives, such as CME Group’s S&P 500 equity-weighted futures, to bet on the S&P as it slides against a sharp decline in tech stocks. The contract, which started in February, has an open interest of 16,500 contracts this month, which is about $2.4bn.
A sharp decline in Magnificent Seven shares in July and August led to a jump in interest in the contract, said CME’s global head of equity products Paul Woolman. “I think that woke up some customers about how to manage that risk and what kind of policies they should put in place.”
“It’s a sign of market participants looking to diversify into low-cost assets and not just chasing performance,” said Alessio de Longis, chief investment officer at Invesco Solutions, the multi-asset arm of the fund manager. $1.8tn, of a general approach to performance. equal weight interest.
However, Bryan Armour, director of passive strategy research at Morningstar, said that using an adjusted fund to give each company equal weight would be unlikely. be the last way to avoid the fear of concentration in the market.
“Incorporating fundamentals into the analysis of each company can help investors more than give them equal weight,” Armor said. “At the very least, that would reflect the market’s identity better.”
T Rowe Price portfolio manager Rick de los Reyes said a shift in sentiment could help sectors such as energy, steel, mining and other industrial products. “There is some excitement around the rest of the market, and a sense that you can finally start to see some momentum,” he said.
