Canadian Investors: Avoid U.S. Market Concentration Risk with These Equal-Weighted ETFs

Man, the U.S. market is pretty concentrated these days. I’m looking at the sector composition of the S&P 500 versus the Nasdaq 100, and technology companies are absolutely dominating. In the S&P 500, technology makes up roughly 34%. In the Nasdaq 100, it sits right around 50%.

If we look at the weight of the largest companies, it gets even more striking. The 50 biggest firms in the S&P 500 account for about 44% of the index. In the Nasdaq 100, that figure climbs to roughly 58%.

Now, there is a good reason for this. Market-cap-weighted indexes are designed to reward success. As companies grow, they naturally take up a larger share of the index. Investors benefit from that momentum without having to pick individual stocks, and they can do it at very low cost.

That works great if you bought earlier in the cycle. If you are entering the market today, however, that concentration risk is something worth paying attention to. It can make some investors hesitate or even try to time the market, which in most cases is the worst possible decision.

A more practical alternative is to look at equal-weighted ETFs. The concept is simple. Instead of allocating more capital to the biggest companies, each stock receives the same weight in the portfolio. If there are 100 companies in the index, each one gets 1%. The portfolio is then rebalanced periodically.

This process creates a mild buy-low, sell-high effect. Stocks that have run up get trimmed, while those that have lagged get topped up. The trade-off is that equal-weight strategies can sometimes lag during strong bull markets because they cap the momentum of the largest winners.

In ETF form, however, the higher turnover does not create the same capital gains distributions you often see in mutual funds. Thanks to the in-kind creation and redemption mechanism, these strategies can remain relatively tax efficient.

Fees have also come down over time, with newer equal-weight ETFs charging far less than they did a decade ago. Here are two I like, one from Invesco Canada and one from BMO Global Asset Management.

Invesco S&P 500 Equal Weight Index ETF (EQL)

EQL is the one a lot of Canadian investors default to, largely because of the brand name and the familiarity of the S&P 500 benchmark.

Structurally, it is very simple. EQL is essentially an ETF of ETFs. More specifically, it is a fund of funds that holds the U.S.-listed Invesco S&P 500 Equal Weight ETF (RSP).

The advantage for Canadian investors is convenience. By buying EQL, you gain access to the strategy in Canadian dollars without needing to convert cash to U.S. dollars in your brokerage account.

That said, there is one small tax wrinkle. Because the underlying ETF is U.S.-listed, Canadian investors cannot avoid the 15% U.S. withholding tax on dividends by holding it in a Registered Retirement Savings Plan (RRSP). In practice, however, that drag tends to be fairly small and is something many Canadians simply accept as part of investing in U.S. equities.

The strategy itself is exactly what the name implies. The ETF takes the 500 companies in the S&P 500 and assigns each one the same weight. Every quarter, the portfolio is rebalanced so each holding returns to roughly 0.2% of the fund regardless of its size or sector.

Performance, however, reflects the trade-offs of that approach. Over the past five years, EQL has lagged the broader market. It has delivered an annualized total return of 11.94%, compared with 15.9% for the S&P 500 in Canadian-dollar terms after accounting for withholding tax.

Interestingly, the ETF’s tracking against its intended benchmark has also been noticeable. Over that same period, the S&P 500 Equal Weight Index itself returned 12.53% annualized in Canadian dollars. A good portion of that gap comes down to fees.

EQL charges a 0.26% management expense ratio. That is not outrageously expensive, but it is not particularly cheap either. Part of that cost reflects the fees passed through from the underlying U.S.-listed equal-weight ETF it holds.

Still, if you want a simple equal-weight approach tied to a widely recognized benchmark, EQL checks a lot of boxes. Investors seem to agree, as the fund currently sits at about $1.6 billion in AUM.

BMO MSCI USA Equal Weight Index ETF (ZEQL)

My preferred alternative to EQL is ZEQL, which debuted on February 4, 2026, and currently sits at just under $9 million in assets under management.

ZEQL tracks the MSCI USA Equal Weighted Index, which ends up looking very similar to the S&P 500 Equal Weight Index in practice. The benchmark currently consists of 537 large- and mid-cap U.S. stocks with significant overlap with the S&P 500 universe.

Functionally, I expect the portfolios, risk profile, and long-term returns of ZEQL and EQL to be fairly similar. They are both broadly diversified equal-weight strategies covering large segments of the U.S. equity market. Where ZEQL has the edge is cost.

BMO is offering this ETF at a rock-bottom 0.06% management expense ratio. That is less than a quarter of the 0.26% charged by EQL. Over long periods of time, that difference in fees alone could allow ZEQL to modestly outperform if the underlying indices continue to deliver similar returns.

Another interesting angle is tax-loss harvesting. For example, if you owned EQL and the market price fell below your cost basis during a downturn, you could sell it to realize a capital loss that offsets future capital gains. You could then immediately reinvest the proceeds into ZEQL.

Because the two ETFs track different indices, they are generally not considered “substantially identical,” which means you would likely avoid triggering the superficial loss rule that normally requires investors to wait 31 days before repurchasing the same security.

Of course, tax rules can be nuanced. If you are unsure whether a specific transaction qualifies, it is always a good idea to confirm with a financial advisor or accountant first.