Advisors Rethink Equal Weighting Amid Equity Concentration

Rising equity concentration is prompting advisors to rethink portfolio construction. However, they also want to avoid simply swapping top-heavy market risk for new factor risks. For clients with low-cost-basis holdings, making significant changes poses tax and operational challenges. On a recent episode of the Crossing the Themes podcast, Danny Schwab, senior investment strategy advisor at SS&C ALPS Advisors, and Paul Baiocchi, head of fund sales & strategy, discussed how advisors are navigating these constraints.Key Takeaways Concentration vs. Tax Constraints: Low-cost-basis positions make wholesale rebalancing difficult. As a result, complementary strategies can offer a way to broaden exposure without replacing existing core allocations. Factor Drift in Equal Weighting: Traditional single-stock equal-weighted S&P 500 strategies add exposure to smaller companies, higher-beta stocks, and additional volatility. This fundamentally alters a portfolio’s risk profile. Sector-Level Equal Weighting: The ALPS Equal Sector Weight ETF (EQL B) equal weights market sectors while maintaining market-cap weighting within each sector, allowing advisors to adjust sector exposure alongside an existing S&P 500 allocation. Managing Equity Concentration Risk in Portfolios For advisors concerned about concentration, the challenge is not recognizing the problem. Instead, it is finding a way to address it without disrupting portfolios long-held positions with low cost bases. Baiocchi noted that those constraints make familiar approaches appealing. For example, advisors may consider moving from a market-cap-weighted S&P 500 allocation to an equal-weighted version. That approach, however, comes with its own portfolio-construction considerations. See More: VettaFi’s Murphy Talks ETF Strategies & AI Bottlenecks on BloombergHow Single-Stock Equal Weighting Alters Factor Risk Baiocchi explained that equal-weighting individual stocks addresses concentration among the largest companies. However, it also changes the portfolio’s broader risk profile. The approach increases exposure to smaller companies and higher-beta stocks, he said. In addition, it introduces more volatility as the portfolio moves further down the market-cap spectrum. Instead, Schwab and Baiocchi point to a sector-level approach. This approach changes the portfolio’s sector mix while retaining market-cap weighting among individual stocks within each sector.Sector Allocation With ALPS Equal Sector Weight ETF (EQL) Schwab described EQL as an example of that approach. Unlike a single-stock equal-weight strategy, EQL equal weights sectors than individual stocks. Meanwhile, the stocks within each sector remain market-cap weighted. As a result, the structure increases exposure to sectors that carry smaller weights in a traditional market-cap-weighted index. At the same time, it reduces exposure to sectors that dominate the index. As of August 28, 2026, EQL top sectors include energy (9.90%), healthcare (9.74%), financials (9.66%), information technology (9.50%) and materials (9.02%). Schwab said advisors can use EQL alongside an S&P 500 ETF. This allows them to modify the portfolio’s overall sector profile without overhauling the core allocation. For advisors confronting concentration risk, the broader lesson is that diversification involves more than simply reducing the weight of the largest stocks. Instead, portfolio construction also requires considering which new exposures a strategy introduces. In this context, EQL represents a sector-level approach to broadening equity exposure while preserving market-cap weighting within individual sectors. For more news, information, and analysis, visit the ETF Building Blocks Content Hub. VettaFi LLC (“VettaFi”) is the index provider for EQL, for which it receives an index licensing fee. However, EQL is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of EQL.