Additionally, the equal-weight indexing method helps emphasis more undervalued stocks, since market-cap-weighted methodologies typically overweight larger components that have been outperforming. In contrast, the equal-weighting methodology would rebalance on a regular basis, selling recent winners and buying recent losers to maintain its equal tilt.
However, potential investors should be aware that due to its more frequent rebalancing, the equal-weight index-based ETFs could incur greater turnover rates, compared the market-cap-weighted Nasdaq-100 ETF. Due to the extra portfolio management, the equal-weight ETFs are also slightly more expensive. QQQE has a 0.35% expense ratio and QQEW has a 0.6% expense ratio, compared to QQQ’s 0.2% expense ratio.
Over the past three months, QQQE has increased 6.1% and QQEW gained 5.9% while QQQ was up 5.0%. Both equal-weight Nasadq ETFs are trading near all-time highs.
For more information on the Nasdaq, visit our Nasdaq category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of QQQ.