Tech Sector Momentum and Premarket Optimism: Is Now the Time to Rebalance Into Tech?

The technology sector has emerged as a dominant force in 2025, driven by surging investor demand for AI-driven innovation and digital transformation. As of September 2025, tech sector ETFs have captured headlines with record inflows and robust returns, sparking debates about whether now is the optimal time to rebalance portfolios toward this high-growth segment. This analysis evaluates the sector’s performance, ETF positioning, and broader market dynamics to provide a data-driven perspective.

Tech ETFs: A Magnet for Capital

The third quarter of 2025 has seen unprecedented inflows into technology sector ETFs. According to a report by ETF.com, the Vanguard S&P 500 ETF (VOO) and iShares Core S&P 500 ETF (IVV) led the charge, with VOO attracting $12.5 billion in July and $9.2 billion in August alone [1]. While these broad-market funds reflect overall investor optimism, tech-specific ETFs have outperformed. For instance, the Technology Select Sector SPDR Fund (XLK) delivered a 13.26% year-to-date (YTD) return as of September 4, 2025, with assets under management (AUM) exceeding $83.8 billion [9]. Similarly, the iShares U.S. Technology ETF (IYW) and iShares Expanded Tech Sector ETF (IGM) posted YTD returns of 14.21% and 15.68%, respectively [10][11].

The momentum has only accelerated in September. Data from Reuters reveals that tech ETFs saw a net inflow of $1.87 billion in the week ending September 3, marking the largest weekly intake since August 13 [6]. This surge underscores sustained demand amid broader market optimism, particularly as investors position for AI-driven growth and regulatory tailwinds for digital assets.

Broader ETF Trends and Active Management

The rise of tech ETFs is part of a larger trend reshaping the ETF landscape. Global ETF assets under management (AUM) reached $14.8 trillion by the end of 2024, with projections of further growth in 2025 [7]. A key driver is the rise of active ETFs, which accounted for nearly half of U.S. ETF inflows in 2024 and are expected to grow to $4 trillion globally by 2030 [7]. This shift reflects investor appetite for strategies beyond passive indexing, including thematic plays on technology and innovation.

Notably, some firms are pivoting toward digital assets. U.S. Global Investors, for example, announced a strategic shift to increase exposure in Bitcoin, capitalizing on the regulatory momentum for spot Bitcoin ETFs like BlackRock’s, which achieved record AUM growth [8]. While this signals a diversification of tech-related opportunities, it also highlights the sector’s evolving risk profile.

Diversification: A Prudent Counterbalance

Despite the allure of tech’s momentum, experts caution against overconcentration. A Q3 2025 outlook from SSGA advises investors to balance tech exposure with defensive and growth-oriented sectors like Insurance, Utilities, and Aerospace & Defense [3]. These sectors offer resilience during economic uncertainties and geopolitical tensions, which have recently spurred demand for defense-linked assets [4].

The case for diversification is further reinforced by the volatility inherent in tech stocks. While AI and digital innovation drive growth, rapid valuation expansions can create sharp corrections if earnings fail to meet expectations. For instance, the recent $1.87 billion inflow into tech ETFs [6] contrasts with the sector’s historical drawdowns during interest rate hikes or regulatory crackdowns.

Is Now the Time to Rebalance?

The decision to rebalance into tech hinges on two factors: momentum sustainability and portfolio alignment. The data suggests that tech ETFs remain a compelling vehicle for capturing innovation-driven growth, particularly for investors with a medium- to long-term horizon. However, the sector’s dominance—accounting for twice the inflows of the next best-performing sector in Q1 2025 [6]—raises concerns about overcrowding.

A strategic approach might involve incrementally increasing tech exposure while hedging with defensive sectors. For example, pairing a position in XLK or IYW with utilities or insurance ETFs could mitigate downside risks without sacrificing growth potential. Additionally, active ETFs focused on niche tech themes (e.g., AI infrastructure, cybersecurity) offer targeted exposure for those seeking to capitalize on specific trends [7].

Conclusion

The technology sector’s momentum in 2025 is undeniable, fueled by AI innovation, regulatory tailwinds, and robust ETF inflows. However, the sector’s volatility and the broader economic uncertainties necessitate a balanced approach. For investors considering a rebalance, a diversified strategy that leverages tech ETFs while incorporating defensive and growth-oriented sectors may offer the optimal path forward. As always, aligning allocations with individual risk tolerance and investment goals remains paramount.

Source:
[1] U.S. ETFs Pull In $119.3B in August, On Pace for $1T in 2025 [https://www.etf.com/sections/monthly-etf-flows/etfs-pull-1193b-august-highest-monthly-total-2025]
[2] ETFs Show Strongest Inflows of 2025 in July, Led by VOO [https://www.etf.com/sections/monthly-etf-flows/etfs-show-strongest-inflows-2025-july]
[3] Sector opportunities for Q3 2025 [https://www.ssga.com/us/en/intermediary/insights/sector-opportunities-for-q3-2025]
[4] U.S. Global Investors Reports Results for the Third Quarter ... [https://www.usfunds.com/resource/u-s-global-investors-reports-results-for-the-third-quarter-of-2025-fiscal-year-initiates-strategy-to-increase-its-investment-in-the-bitcoin-ecosystem/]
[5] Release: Combined Estimated Long-Term Flows and ETF [https://www.ici.org/research/stats/combined_flows]
[6] Global equity fund inflows jump on rate cut expectations [https://www.reuters.com/world/china/global-markets-flows-graphic-2025-09-05/]
[7] 2025 ETF Trends: Shaping market growth and innovation [https://www.ey.com/en_gl/insights/financial-services/emeia/how-etf-trends-are-shaping-market-growth-and-innovation-for-2025]
[8] Technology ETF List [https://etfdb.com/etfs/sector/technology/]
[9] XLK: The Technology Select Sector SPDR® Fund [https://www.ssga.com/us/en/intermediary/etfs/the-technology-select-sector-spdr-fund-xlk]
[10] iShares U.S. Technology ETF | IYW [https://www.ishares.com/us/products/239522/ishares-us-technology-etf]
[11] iShares Expanded Tech Sector ETF | IGM - BlackRock [https://www.blackrock.com/us/individual/products/239769/ishares-north-american-tech-etf]