ALPS, an asset manager turned exchange traded fund (ETF) provider, has just launched its second ETF. The new fund employs an equal weighting strategy with the sectors that make up the S&P 500.
The ALPS Equal Sector Weight ETF (EQL) is a fund of funds made up of the nine sectors in the S&P 500, each represented in the ETF by a Select Sector SPDR Fund.
Jeremy Held, director of research at ALPS, says the fund differs from other equal weight strategies, because most equal weight ETFs tend to do their weighting at the stock level.
The fund will start each quarter with all sectors at an equal weight, with each one weighing in at 11.1% of the fund. Throughout the quarter, the weights will shift until they rebalance once again at the next quarter.
The purpose of the strategy is to minimize the risk that one sector can sink an entire ship.
“If you look at the last three major declines in the S&P 500, it all occurs when the largest sector in the market crashed,” Held points out.