Translation: EQAL is evolved equal weighting in action. The ETF’s index methodology “helps mitigate the sector biases inherent in a constituent equal-weight approach. This methodology also enables the index to contra-trade against the most recent price movements at the sector level as well as at the constituent level as the index rebalances,” according to a note by PowerShares.
EQAL’s recent returns highlight the effectiveness of its strategy. Over the past month, the ETF is up 5.7%, or 140 basis points ahead of the traditionally-weighted iShares Russell 1000 ETF (NYSEArca: IWB).
Some of that advantage is attributable to EQAL’s sector weighting strategy. Technology and financial services combine for 36% of of IWB’s weight, but it takes three sectors – technology, industrials and energy – to exceed 36% of EQAL’s weight. Additionally, EQAL’s weight of 8.3% to richly valued, interest rate-sensitive utilities stocks is nearly 250 basis points below the weight the rival Guggenheim Russell 1000 Equal Weight ETF (NYSEArca: EWRI) assigns to the same sector. [Draper Talks Index Construction]
EQAL has another advantage: Cost, or lack thereof. The ETF’s 0.2% annual expense ratio is half that of well-known, broad market equal-weight ETFs.
PowerShares Russell 1000 Equal Weight Portfolio