EQL Outperforms S&P 500 Over 3-Year Period | ETF Trends

An equal weight strategy’s inherent factor tilt toward small-size companies has led to the methodology’s impressive outperformance year to date — but the methodology is also paying off during longer periods of time.

The ALPS Equal Sector Weight ETF (EQL) uses an equal weight methodology but with a unique twist: equal weighting by sector, rather than individual security.

EQL utilizes a fund-of-funds ETF structure, delivering exposure to the U.S. Large Cap Equity market by investing equal proportions in 11 Select Sector SPDRs. EQL, which rebalances quarterly, delivers moderate yet meaningful exposure to every sector of the market, according to ALPS.

The equal-weighting strategy results in a drastically different composition relative to market cap-weighted products such as the SPDR S&P 500 ETF (SPY). EQL is designed to offer more balanced exposure and has the added benefit of avoiding the potentially adverse impact of rallies or crashes in specific sectors of the economy. 

This has been particularly useful in the current market environment. Year-to-date through December 8, EQL has returned -8.7%, compared to the S&P 500 Index’s decline of -15.6%. Over a three-year period, EQL is up 34.3% compared to the S&P 500’s 32.3% increase, according to YCharts.

In maintaining an equal-weight sector approach, compared to SPY, ALPS’ offering underweights information technology, healthcare, consumer discretionary, and financials. EQL overweights energy, communication services, industrials, consumer staples, utilities, real estate, and materials.

EQL has surged in investor interest this year and was SS&C ALPS Advisors most popular ETF in November, as measured by net inflows.

The equal-weight sector fund saw $24 million in inflows in November, more than any other ETF offered by SS&C ALPS Advisors, ending last month with $334 million in assets under management. The fund, which charges 27 basis points, has garnered $135 million in year-to-date inflows.

For more news, information, and analysis, visit the ETF Building Blocks Channel.