ETFs capturing the tech sector have seen substantial inflows over the last month despite fears continuing to mount regarding overconcentration in the ‘magnificent 7’ stocks.

The iShares S&P 500 Information Technology Sector UCITS ETF (IUIT) attracted $376m inflows over the past month, while the iShares MSCI Europe Information Technology Sector UCITS ETF (ESIT) saw $214m.

Inflows swelling toward tech ETFs lay in stark contrast to concerns growing over overconcentration risks that are associated with the rapid growth of ‘magnificent 7’ stocks, which currently make up nearly one-third of the S&P 500's entire market cap.

This was evidenced in Morningstar’s European ETF Asset Flows Update which highlighted funds tracking the S&P 500 Equal Weight index appeared in the top 10 of the US Large-Cap Blended Equity category for Q3.

Jose Garcia-Zarate, associate director of passive strategies at Morningstar, said the revived interest in equal-weight strategies: “suggests that some investors are becoming wary of the high concentration in tech stocks found in traditional market-cap-weighted benchmarks.”

Despite these concerns, the continued inflow into these products highlights sustained investor confidence in tech sector ETFs.

“We are of the belief that this AI rally is going to last,” said Andreas Bickel, CIO and head of the investment office at Lienhardt & Partner Privatbank Zurich.

Bickel continued that there is cautious sentiment and underinvestment in continental Europe and they believe this could lead to a melt-up or a sudden surge in equity prices if investors start increasing their positions in tech.

“Therefore, we argue that this rally will continue to grow and following the recent pause in tech sector, it will likely pick up steam,” he said.

Bickel accesses the tech sector via ETFs such as the SPDR S&P U.S. Technology Select Sector UCITS ETF (SXLK), the iShares NASDAQ 100 UCITS ETF (CNDX), the Invesco EQQQ Nasdaq-100 UCITS ETF (EQQQ) and the VanEck Semiconductor UCITS ETF (SMH).

Alberto García Fuentes, head of asset allocation at ACCI Capital Investments previously told ETF Stream, said when tech company valuations are slightly “tighter” he will combine a tech ETF, such as the iShares S&P 500 Information Technology Sector UCITS ETF (IUIT) with an equal weight strategy to avoid overconcentration risks.

IUIT has a strong tilt towards Mag 7 stocks, with the top three weightings being Apple (22.2%), Nvidia (18.7%) and Microsoft (18.3%).

When investors do opt for an S&P 500 ETF strategies can include diversifying with smaller companies and defensive sectors like healthcare to balance risk and capture growth.