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Sidestepping Big Tech: Top Performing ETFs to Diversify Your Portfolio in 2025

Emilia Wright | January 24, 2025

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How Sidestepping Big Tech Has Paid Off Lately in These Stock ETFs

Investors have recently witnessed significant fluctuations in the performance of exchange-traded funds (ETFs) that either minimize or entirely avoid exposure to dominant Big Tech companies. As 2025 unfolds, strategies aimed at sidestepping concentrated bets in tech giants like Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta, and Tesla have yielded surprisingly favorable results. In the past month, for instance, the Roundhill Magnificent Seven ETF (MAGS)—which includes all seven of these tech heavyweights—saw a slight decline of about 0.4%. In contrast, the Defiance Large Cap ex-Mag 7 ETF (XMAG), which excludes these stocks, reported a gain of 3.7%.

Market Dynamics: The Role of Big Tech

Big Tech stocks, encompassing the information technology, communication services, and consumer discretionary sectors, hold significant sway over major stock indexes, such as the S&P 500 and Nasdaq 100. When the performance of these megacaps stumbles, broad equity benchmarks are often dragged down as well, primarily due to their extensive market capitalizations. The current financial climate has amplified concerns about concentrated investments, prompting many investors to explore diversified alternatives.

Recent headlines surrounding artificial intelligence (AI) projects have intensified the spotlight on these technology companies. Notably, President Donald Trump announced a new venture called Stargate, which aims to channel $500 billion into AI infrastructure within the U.S. over the next four years. The hype surrounding generative AI last year led to a remarkable rally in Big Tech stocks, leading discerning investors to turn towards more balanced strategies that help mitigate the risks associated with concentrated exposure.

Diversifying with Equal-Weight ETFs

ETFs that maintain an equal weight among the constituent stocks of the tech-heavy Nasdaq 100 have performed notably well over the past month. For example, the Direxion Nasdaq-100 Equal Weighted Index Shares (QQQE) witnessed a 3.7% increase, outperforming the traditional Nasdaq-100 ETF, Invesco QQQ Trust Series I (QQQ), which posted only a 1.9% gain during the same period.

Another standout performer is the iShares Nasdaq-100 ex Top 30 ETF (QNXT), which has surged by 4.6% over the past month. Year-to-date, this fund has achieved a remarkable 6.5% increase—far surpassing the 4.2% gain of the QQQ ETF. Doug Yones, CEO of Direxion, noted a growing bullish sentiment among investors, emphasizing that a majority of their ETF offerings are actively being traded despite being designed for short-term positions.

Market Composition and Sector Rotation

At the end of 2024, data revealed that the information technology sector constituted approximately 51% of the Nasdaq 100, highlighting the sector’s overwhelming influence in traditional market indexes. In contrast, the equal-weighted version of the index offers reduced exposure to these colossal companies, thus better supporting diversification. For instance, Apple had almost a 10% weighting in the Nasdaq 100, while Nvidia and Microsoft followed closely with weights of more than 8%.

Sector rotation has also emerged as a notable trend in early 2025, with industrial stocks outperforming technology thus far. This shift signifies the broadening interests of investors as they explore various sectors for potential growth. The iShares Semiconductor ETF (SOXX) and the VanEck Semiconductor ETF (SMH) have shown remarkable performance, rising 9.2% and 10.2% respectively, indicating an increasing investor focus on semiconductor stocks, many of which are essential for AI development and applications.

AI-Focused ETFs and Their Performance

While some ETFs are inclined towards technological innovation and AI, such as the Global X Robotics & Artificial Intelligence ETF (BOTZ) and the Global X Artificial Intelligence & Technology ETF (AIQ), the performance of these funds is noteworthy. The BOTZ ETF has rallied by 8.1% year-to-date, while the AIQ ETF has seen a rise of 5.6% over the same timeline.

Finally, the newly launched VistaShares Artificial Intelligence Supercycle ETF (AIS), which aims to invest in global AI stocks, has experienced a significant gain of 10.8% thus far in 2025.

Conclusion

As the U.S. stock market continues to navigate complexity, investors are increasingly recognizing the advantages of diversifying their portfolios through ETFs that avoid concentrated positions in Big Tech. With certain funds outperforming traditional indices, 2025 marks a pivotal year for those seeking to balance their investments amidst evolving market dynamics.