How Sidestepping Big Tech has Paid Off in Recent Stock ETFs

In today’s volatile marketplace, the wisdom of diversifying investments away from Big Tech has been firmly reinforced. As we dive into 2025, it’s becoming increasingly evident that sectors beyond Silicon Valley are proving their mettle, and savvy investors are reaping the rewards. A recent analysis reveals that exchange-traded funds (ETFs) that help individuals minimize their exposure to massive tech stocks have significantly outperformed the Nasdaq 100, largely driven by seven closely watched megacap companies.

Steering Clear of Big Tech

According to FactSet data, while shares of the Roundhill Magnificent Seven ETF (MAGS), which includes heavyweights such as Nvidia Corp., Apple Inc., Microsoft Corp., Amazon Inc., Alphabet Inc., Meta Platforms Inc., and Tesla Inc., are down around 0.4% over the past month, ETFs designed to exclude these very companies have produced strikingly better results. The Defiance Large Cap ex-Mag 7 ETF (XMAG) recorded a commendable gain of 3.7% in the same period.

This divergence in performance points to a troubling trend: when Big Tech falters, it can have a ripple effect, dragging down broader indexes like the S&P 500 and Nasdaq 100 due to their outsized market weightings. Consequently, investors are increasingly interested in strategies that help mitigate this risk, particularly as concerns rise over the concentrated bets on a mere handful of stocks.

A Shift in Focus to Equally Weighted Indices

A notable trend has emerged with ETFs that employ equal weighting of companies in the tech-heavy Nasdaq 100. The Direxion Nasdaq-100 Equal Weighted Index Shares (QQQE) surged by 3.7% over the past month, outpacing the Invesco QQQ Trust Series I (QQQ), which has enjoyed a much smaller 1.9% gain. Meanwhile, the iShares Nasdaq-100 ex Top 30 ETF (QNXT) further underscored the merits of diversification by climbing 4.6% during this period.

Investors Turn to Semiconductor ETFs

As always, the tech sector continues to evolve, with artificial intelligence (AI) being a major focus in discussions surrounding investment potential. The iShares Semiconductor ETF (SOXX) and VanEck Semiconductor ETF (SMH) have experienced growth this year, gaining 9.2% and 10.2%, respectively. Nvidia, a prominent player in the AI arena, is a significant holding in both ETFs, showcasing the continued importance of this industry.

Brighter Prospects Beyond Big Tech

Interestingly, despite the market’s love affair with Big Tech, many investors are finding opportunities in sectors less reliant on these technological giants. The Global X Robotics & Artificial Intelligence ETF (BOTZ) and the Global X Artificial Intelligence & Technology ETF (AIQ) have both outperformed the S&P 500 and Nasdaq 100 this year. These ETFs are smartly positioned to capitalize on the growth in AI and robotics without being overly reliant on Big Tech stocks.

Aniket Ullal, head of ETF research at CFRA, noted that this year has seen a sector rotation, with industrials outpacing technology thus far. This shift signals changing investor sentiment, as stocks that were once overshadowed by tech seem to be regaining traction.

The Outlook Ahead

As we progress further into 2025, the strategy of sidestepping Big Tech appears effective, promoting a broader, healthier investment approach. The S&P 500 has demonstrated resilience, closing at a record high recently, buoyed by gains across various sectors. However, it’s essential to monitor how developments in the tech sector, particularly surrounding AI, will unfold, as they might influence investment trajectories in the coming weeks and months.

In summary, investors would do well to reconsider their strategies in light of recent performance data. By diversifying away from Big Tech, one may find themselves better positioned to ride the waves of market fluctuation. After all, traditional financial principles remind us that diversification remains a cornerstone of sound investing. As 2025 unfolds, let us not get derailed by the hype of concentrated megacap investments, but instead stay steadfast in pursuing broader opportunities that promise sustainable growth.