New ETF Takes a Sophisticated Approach to Equal Weighting

EQAL, which charges 0.2% per year, has sector weights ranging from 2.3% for telecom up to 13% for technology. Six other sectors – industrials, health care, consumer staples, consumer discretionary, financial services and energy – receive double-digit allocations in the new ETF.

Russell’s pre-screening methodology, which includes a mandate that the share portion of a potential constituent in a notional $5 billion portfolio cannot exceed 5% of the company’s float, ensures liquidity and that the benchmark remains investable. [Looking at Alternatively-Weighted ETFs]

EQAL’s top four sector weights combine for about 48% of the new ETF’s weight. By comparison, the iShares Russell 1000 ETF (NYSEArca: IWB), the cap-weighted ETF that tracks the Russell 1000, allocates a combined 50.6% to its top three sector weights.

“Equal-weighted indexes, first introduced more than a decade ago, may be one of the earliest examples of a ‘smart beta index.’ Their straightforward methodology has at times resulted in performance superior to that of their market-cap-weighted counterparts, albeit with an uptick in volatility,” adds Russell.

Other ETFs tracking Russell equal-weight indexes include the Guggenheim Russell 1000 Equal Weight ETF (NYSEArca: EWRI) and the Guggenheim Russell 2000 Equal Weight ETF (NYSEArca: EWRS).