How to avoid concentration in AI-related mega-cap: play the S&P 500 equal weight
Gold vs US 2 years yield was the signal.
On the 22nd of October we made the following point:
"Watch the US 2-Yr yield. If it stays stickier than nominal dips suggest, expect continuing pressure on both precious metals and high-beta tech equities."
Gold continues to come under pressure as well as high tech equities.
The warning was given.
Given the significant weight of the TECH sector. We agree with Bond maverick Jeffrey Gundlach. If you want to play "defense" play the S&P 500 equal weight
Here's the performance comparison using VOO (S&P 500) and RSP (S&P 500 Equal Weight), as of the Oct 29, 2026 close:
Period | S&P 500 (VOO) | Equal Weight (RSP) |
|---|---|---|
1 Month | +0.92% | +5.78% |
3 Month | +1.57% | +1.35% |
6 Month | +6.76% | +8.49% |
YTD | +12.58% | +14.09% |
1 Year | +13.13% | +17.34% |
Key takeaways:
- Equal weight has outperformed over the past year (+17.3% vs +13.1%), indicating broader market participation rather than mega-cap leadership.
- The gap narrowed over the summer — the cap-weighted index actually edged ahead over 3 months — but equal weight has strongly pulled ahead again in the last month (+5.8% vs +0.9%), suggesting a recent rotation into smaller/average-sized constituents.
Jeffrey Gundlach's recommendation is consistent with what he's said recently: within his 30% equity sleeve he holds only the equal-weight S&P 500, explicitly to avoid concentration in AI-related mega-caps, which he sees as the epicenter of a potential "blast radius" alongside his bearish macro calls (CPI back toward 4%, ~$40.5T national debt, AI credit showing pre-crisis signals).
Where I think he's right:
Concentration is historically extreme. The cap-weighted index's fate is increasingly tied to a handful of AI-linked names; equal weight removes single-stock and single-theme dependence.
The data backs him up so far. As we just saw, RSP has beaten VOO over 1Y (+17.3% vs +13.1%), YTD (+14.1% vs +12.6%), 6M, and 1M. Rotation into the "average" stock has been a tailwind.
Cheaper valuation. Equal-weight typically trades at a meaningful P/E discount to cap-weight, so you take less valuation risk if AI enthusiasm cools.
Where I'd push back:
- Equal weight is not a free lunch. It has higher beta to economic cycles — more mid-caps, industrials, financials, cyclicals. If his own macro fears (stagflation, credit stress) materialize, equal weight would likely fall harder than mega-caps, which historically defend better in downturns. His bearish macro view and his equity choice sit in slight tension.
- It can lag for long stretches. Equal weight underperformed cap-weight for most of the 2015–2024 decade; the current edge is only ~10 months old and driven partly by a tech wobble, not proof of a durable regime change.
- Timing matters. Last month's +5.8% RSP surge suggests some of the rotation trade may already be crowded.
My take: his argument is sound as a risk-management position (reducing AI concentration), and it has worked recently. But I'd treat equal weight as a diversifier within equities rather than a wholesale replacement — the case rests on tech de-rating continuing, which nobody, including Gundlach, can time reliably. Not investment advice; consider your own horizon and risk tolerance.
