Equal-Weight Tech ETF Outperforms Nasdaq-100 for Years

According to a report from 24/7 Wall St., an equal-weight ETF consisting of only 35 stocks, known as XNTK, has been quietly outperforming the Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100 index. This outperformance is not a fluke but stems from the fund's structural design that gives each stock an equal weighting.

Details

The XNTK fund, managed by Amplify ETFs, distributes its investments equally among 35 major technology companies, while QQQ is heavily weighted toward giants like Apple, Microsoft, and Nvidia. This equal-weight structure reduces the impact of mega-cap stocks and allows smaller and mid-sized companies to contribute more significantly to performance.

Context

Over the past five years, XNTK has outperformed QQQ by a notable margin, especially during periods of market volatility. Analysts attribute this to the fact that equal-weight stocks benefit from greater diversification and less severe drawdowns.

What This Means for Investors

This performance offers an important lesson: equal-weight diversification may be a superior strategy compared to concentrating on top-heavy indices. However, investors should assess their risk tolerance and investment goals before making any decisions.