Striking a Better Balance in U.S. Equity Portfolios with ZEQL

Over the past several years, U.S. equities have delivered impressive returns — but those gains have come with a growing challenge for investors and Advisors alike: concentration risk. A small number of mega‑cap stocks and sectors now dominate the performance of the broad U.S. equity market, increasing its sensitivity to their market swings. Managing that risk without sacrificing long‑term growth potential has become a key portfolio construction priority. 

One solution worth considering is the BMO MSCI USA Equal Weight Index ETF (ticker: ZEQL): a low‑cost way to rebalance U.S. equity exposure and broaden the sources of return.

“The essence of investment management is the management of risks, 
not the management of returns.”

—Benjamin Graham

Why Concentration Risk Matters More Today

The S&P 500 remains the cornerstone of many Canadian portfolios, yet its structure has changed meaningfully over time. Today, the top 10 holdings represent roughly 36% of the index, well above the long‑term average of approximately 23%.¹ At the sector level, Information Technology and Consumer Discretionary now account for an outsized share of total index risk and return. 

This concentration has worked in investors’ favour during periods of strong performance by mega‑cap growth stocks — but it also increases vulnerability. When these stocks sell off, as we have seen on multiple occasions, portfolios can experience sharper drawdowns, even if the underlying fundamentals of these mega-cap growth stocks remain intact. 

Recent years offer a clear example. While stocks like NVIDIA have delivered extraordinary gains driven by the AI theme, they have also experienced meaningful volatility and drawdowns. Moreover, a significant portion of NVIDIA’s revenue is tied directly to other mega‑cap technology companies, further compounding concentration risk within indexes. 

Top 10 Holdings at Levels We Haven’t Seen Since the Turn of the Century

How Equal Weighting Changes the Exposure

Equal‑weight strategies take a different approach. Instead of allocating capital based on company size, each stock receives roughly the same weight. The result is a U.S. equity exposure that is less dependent on a handful of names and more evenly distributed across sectors and market capitalizations. 

For ZEQL, this means a notable shift in portfolio composition:

• About 70% of ZEQL’s weight is in smaller-sized companies (mostly mid-cap), providing access to a wider range of U.S. businesses. This approach offers balanced exposure across the size spectrum, in turn helping capture potential growth opportunities beyond the largest names. 
• Reduced dominance of mega‑cap stocks, helping mitigate stock and sector concentration risk. 
• A broader opportunity set that allows more companies to meaningfully contribute to returns. 

This broader exposure matters because leadership in equity markets tends to rotate over time. In 2025, for example, none of the top‑10 performing stocks in the MSCI USA Index came from the so‑called ​“Magnificent 7.”² Many of the strongest returns were driven by smaller and mid‑sized companies, areas that are structurally under‑represented in traditional cap‑weighted portfolios. 

ZEQL’s Size Exposure Versus the S&P 500

Long‑Term Performance Across Market Cycles

Historically, equal‑weight U.S. equity strategies have delivered attractive results across a range of economic environments. BMO’s MSCI USA Equal Weight strategy has shown: 

• Strong relative performance during periods of market recovery 
• Resilience following major market drawdowns 
• A modest but persistent long‑term return advantage versus the S&P 500, driven by broader participation and rebalancing effects 

Since 1999, the strategy’s annualized return has exceeded that of the S&P 500, while also benefiting from a more diversified return profile. 

A Low‑Cost Foundation for Portfolio Building

Cost matters — especially for core and structural allocations. ZEQL stands out as the lowest‑fee equal‑weight U.S. equity ETF in North America, with a management fee of just 0.05%, representing a meaningful cost advantage relative to peers. 

ZEQL’s Management Fee Is Significantly Lower Than Peers

Practical Portfolio Applications

ZEQL is a flexible tool that can be implemented in several ways: 

1. Pairing with Individual Stock Portfolios
For investors who manage individual U.S. stock portfolios, ZEQL can act as a diversification anchor. Blending ZEQL with a concentrated stock portfolio has historically improved risk‑adjusted returns, as the equal‑weight exposure offsets single‑name risk.

2. Core Holding with Sector Tilts
ZEQL can serve as a neutral starting point, with investors layering sector ETFs on top to express tactical views, without allowing any one sector to dominate the entire allocation.

3. Completion Sleeve for Large‑Cap Exposure
For portfolios already heavily allocated to broad U.S. market ETFs, ZEQL can complement existing holdings by meaningfully increasing exposure to mid‑ and smaller‑cap companies.


Putting Balance Back into U.S. Equity Exposure

Managing risk isn’t about avoiding growth; it’s about ensuring portfolios are not overly reliant on the fate of a small set of stocks. As concentration in U.S. equity markets remains elevated, equal‑weight strategies like ZEQL provide a compelling way to rebalance exposure, broaden participation, and maintain long‑term growth potential. 

With diversified holdings, a structural tilt toward under‑represented parts of the market, and one of the lowest fees in the category, ZEQL offers investors a practical and cost‑effective way to strike the balance in U.S. equity portfolios. 

¹Morningstar Direct. Data is as of March 31, 2026. 

²Magnificent 7: Apple, Microsoft, Alphabet, Amazon, NVIDIA, Meta Platforms, Tesla