The PowerShares Russell 1000 Equal Weight Portfolio (NYSEArca: EQAL) is one of the newest equal-weight exchange traded funds on the market, but investors would do well to focus more on EQAL’s advantages and performance rather than the fund’s age.
EQAL, which debuted in December, tracks the Russell 1000 Equal Weight Index, making the ETF a unique equal-weight competitor to the iShares Russell 1000 ETF (NYSEArca: IWB). Importantly, EQAL is winning that competition.
“The U.S. large cap Russell 1000Equal Weight Index outperformed its market capitalization weighted counterpart the U.S. large cap Russell 1000Index in 2015 year-to-date as of April 30. And in terms of sectors, Energy and Health Care have been key drivers of this comparative outperformance,” according to Russell Investments.
Year-to-date, EQAL has slightly outperformed IWB, but the gap is greater going back to EQAL’s December launch. Since then, EQAL has thumped IWB by a better than two-to-one margin. [Quick Success for a new Equal-Weight ETF]
“Equal weight indexes are designed to include every sector within an investment universe while potentially lessening the impact of any one sector or company on overall index performance. And Russell’s equal weight approach of equal weighting sectors, and then companies within sectors, is unique,” said Russell Managing Director of Global Research & Innovation Rolf Agather in a statement.
Another way of looking at Agather’s comments is the following. Most equal-weight ETFs only equally weight the underlying stocks with little regard for sector weights. However, there can be more to equal-weight ETFs than merely assigning the same allocation to each of the fund’s holdings. EQAL’s underlying index applies an equal weight to nine sectors and then assigns an equal weight to each security from those sectors. [New ETF, New way to Eqaul Weighting]