In our opinion, once you allocate more than 20% of your portfolio to a specific sector, you're amplifying potential volatility and risk in the portfolio itself.
Keep in mind, asset allocation strategies are not necessarily something that is going to automatically produce better returns. I actually find many investors correlate a well balanced portfolio with a portfolio that will outperform. However, asset allocation strategies are something that could ultimately cost you returns. For example, if you had no allocation strategy in 2020 and 2021 and were heavy tech, you likely outperformed in a big way.
Asset allocation strategies are utilized as a risk/volatility reduction strategy. Prime example of this would be if you held too much tech in 2022/2023, you likely underperformed in a big way and exposed yourself to a large amount of volatility along the way.
I personally stick to a hard and fast rule that no sector is more than 20% of my overall portfolio. If the majority of the stocks I own in a sector that has gone over 20% are strong, reliable companies, I'll simply let new contributions to my account slowly lower allocations to that sector. However, if the sector is very volatile, I may decide to rebalance right away, or at the very least at the end of the year or something.
An example of this, at one point because of the financial bull run in 2021 I was nearly 30% finance. Because my financial holdings were blue-chip banks and large P&C insurers like Intact Financial, I trimmed a little bit of profits off my banks, but not nearly enough to get me down to 20%. Instead, gradually over the course of 2022 contributions I made levelled it out to where I am now only around 22%~ to the financial sector.
On the other hand, during the pandemic in 2021, my tech sector rose significantly because of some price appreciation from companies like Lightspeed, Shopify, Dye and Durham etc. With these companies and the tech sector overall, I rebalanced much faster as these are higher beta stocks prone to massive movements in price. As we can see, Shopify and Lightspeed are currently 70%+ down from highs. This isn't going to happen (unless something catastrophic happens) to the Canadian banks. Hence my decision to rebalance slower versus quicker.
I hope this helps. Asset allocation and rebalancing is something every individual investor has to sit down and plan out. I personally know some people who don't rebalance at all. They "let their winners win" and instead balance their portfolios out with new contributions. The larger your portfolio gets however, the more difficult it is to do this. I myself am kind of in the middle. I tweak lots, but not excessively.