The differences between cap-weighting equal-weight by stocks and sector equal-weighting were on display in May. EQL lagged both RSP and the S&P 500, indicating that the equal-weight sector fund was hampered by an allocation to the utilities sector that is more than triple that of the S&P 500’s. [Interest Rates Dim Utility Sector ETFs]
That highlights a potentially interesting, though still hypothetical scenario. Assume that staples, health care and utilities fall out of favor as financials, discretionary and technology lead a cyclical rotation. That would create a draw in EQL, leaving energy, industrials and materials to determine the ETF’s fortunes.
For those keeping score at home, EQL has topped four of the sector SPDRs while trailing five this year.
Alps Equal Sector Weight ETF
ETF Trends editorial team contributed to this piece. Tom Lydon’s clients own shares of RSP.