Weekly ETF Brief

Reversal of Sector Fortunes: Tech Equities Lag the Rest

Two equity truisms have been shattered this year: US stocks now lag Europe, and the Tech sector has underperformed almost all sectors, delivering negative returns year to date. What are the implications for a sector allocation?

13. März 2025 4 min read

Rebecca Chesworth

Senior Equity Strategist

Trump Turns the Tables on Sectors

What a start to the year. Investors are staring at a sudden reversal in fortunes of US versus European equities, as we recently detailed. We are similarly transfixed by the broadening out of activity beyond the Technology sector to previously neglected sectors. This was the theme for our Q1 SPDR Sector & Equity Compass. In it, we suggested that Tech stocks’ strong growth prospects were largely priced in, so there were limits to further outperformance. Other sectors had narrowed the earnings growth gap with Tech, and the large valuation gaps between Tech and other sectors could no longer be justified, particularly given uncertainty over then-incoming President Trump’s policies.

As of market close on 7 March, nine of the 11 GICS sectors have produced positive returns year to date.¹ Defensive sectors, including Health Care and Consumer Staples, have benefited from their relatively stable income and lower volatility, as markets question US economic momentum. Other domestic sectors, such as Financials and Real Estate, have also held up against trade war worries.

Two sectors have performed negatively. Information Technology (including Microsoft, NVIDIA, and Apple) and the Consumer Discretionary sector (Amazon and Tesla) have fallen in line with sharp declines in the Magnificent 7.¹ These two sectors have also shown significant volatility since DeepSeek-R1’s release in January, and in response to the evolving interest rate outlook.

Figure 1: US Select Sectors Performance Broadens Out

Figure 1 shows how US stock performance has broadened out

Sector Flows Mimic Performance

Sector ETF flows have largely mirrored these trends. Net flows to Technology ETFs turned negative in February after seeing inflows the month before. Money moved into Banks and Financials ETFs, and Communication Services. Meanwhile, tariff fears and the soft outlook for crude oil have meant continued outflows from Energy and Materials.

These periods of change and dispersion can be popular with sector investors, particularly those keen to opportunistically alter their tactical allocation. As tariffs play out and geopolitics is upended, we expect that this reversal could have further to run.

How to Gain Exposure

The following ETFs offer exposure to the sectors discussed:

Stock Weightings to Shift

State Street Global Advisors is also announcing timely and important changes to the index methodology used for SPDR ETF’s European-listed US sector ETFs. After extensive conversations with clients who are keen to reduce their tracking to the S&P 500® sectors, we worked with S&P Dow Jones Indices to adjust the capping on the largest stocks in the Select Sector indices, as shown in Figure 2.

The changes to the index methodology and consequent name change will take place on 24 March 2025, with weights calculated at close on 21 March 2025. State Street Global Advisors will replicate these changes immediately in the 10 SPDR ETFs in scope.

Figure 2: Upcoming Changes to S&P Select Sector Indices

	Current Index: Daily Capped 25/20	New Index: Daily Capped 35/20
Criteria for Inclusion	All stocks in S&P 500 belonging to relevant GICS sector
Index Name	S&P […] Select Sector Daily Capped 25/20 Index	S&P […] Select Sector Daily Capped 35/20 Index
Weighting	Market capitalisation weighted
Rebalancing Frequency	Quarterly
Contingent Rebalance Trigger	Either (a) largest company > 25%, or (b) second largest company > 20%	Either (a) largest company > 35%, or (b) second largest company > 20%
Contingent Rebalance Observation	Daily
Capping Rule 1	If largest company > 25%, cap at 23%	If largest company > 35%, cap at 33%
Capping Rule 2	If second largest company > 20%, cap at 19%	If second largest company > 20%, cap at 19%
Capping Rule 3	Sum of companies > 4.8% cannot exceed 50% of index	N/A

Source: State Street Global Advisors, S&P DJI as at 3 March 2025.

We anticipate changes to stock weightings in five of the US indices as a result of this methodology change. The most notable of these will be to US Technology, which, under the new S&P Technology Select Sector Daily Capped 35/20 Index, could see a significant increase in the weights of the second-, third-, and fourth-largest stocks (Microsoft, NVIDIA, and Broadcom). The largest stock, Apple, should remain relatively unchanged. Smaller stocks such as Salesforce and Oracle could see a cut to their weight following the readjustment.

For more information about the index changes, please refer to the announcement from S&P Dow Jones Indices. For additional details on changes to the SPDR S&P Select Sector UCITS ETFs, see the Notice to Shareholders.

Footnotes

Disclosure

Marketing Communication

For institutional / professional investors use only.

Information Classification: General Access

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Because of the narrow focus sector investing tends to be more volatile than investments that diverse for across many sets and companies.

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7641877.4.1.EMEA.INST

Exp. Date:31/03/2026

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