ETF strategies to broaden beyond the mega-cap tech rally

Investors looking to diversify beyond the tech sector runup this year can consider a handful of alternative ETFs to reduce ballooning concentration risk, said one ETF strategist.”The consternation over the mega-cap tech names driving the market — I understand it,” Todd Sohn, Strategas ETF and technical strategist, told CNBC’s Bob Pisani on “ETF Edge” on Monday. “But we’re seeing participation start to pick up that’s really important for the durability of a bull market.”Sohn said you just need to look at a few ETFs to gauge broadening sector participation, naming the Invesco S&P 500 Equal Weight ETF (RSP), the iShares Russell 2000 ETF (IWM) and the Vanguard Extended Market Index Fund ETF Shares (VXF) as bellwether funds to track sector and overall performance.”Each of those are trading at multi-month highs,” he said. “Close to six-month highs, even more.”The VXF is up nearly 17% in 2023, hitting its highest level since April 2022 this month. The product tracks mid- and small-cap stocks, with Uber, Blackstone, Marvell Technology and Airbnb comprising its biggest holdings.”It’s a very under-the-radar fund,” Sohn said. “[When] you think of Vanguard, you think VOO [and] VTI, their fixed-income products. VXF is down that list in terms of AUM, but it’s a very important tool in assessing market conditions.”For tactical investors looking to diversify into a more balanced fund, Sohn recommended the RSP, which tracks the equally weighted performance of all S&P 500 stocks. The ETF is among the biggest winners in the equity space in 2023, attracting $7.3 billion in inflows this year.”You get financial, energy, material and industrial exposure,” Sohn said of the RSP. “And that’s a kind of a catch-up value tilt play for the second half.”

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