An equal weight strategy will often outperform its market cap-weighted peers, further demonstrated by the year-to-date relative outperformance of the ALPS Equal Sector Weight ETF (EQL).
EQL is designed to offer more balanced exposure than funds tracking the S&P 500, such as the SPDR S&P 500 ETF Trust (SPY), and has the added benefit of avoiding the potentially adverse impact of rallies or crashes in specific sectors of the economy.
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 Select Sector SPDR ETFs are a set of products that divide the S&P into eleven index funds traded throughout the day on NYSE Arca, according to State Street.
Year to date through October 21, EQL has decreased 12.41% while SPY has declined 18.01%, according to YCharts.
In maintaining an equal-weight sector approach, compared to SPY, EQL underweights information technology, healthcare, consumer discretionary, and financials. EQL overweights energy, communication services, industrials, consumer staples, utilities, real estate, and materials.
The tilts away from certain growth sectors, as well as the overweighting of defensive sectors, has contributed to EQL’s outperformance this year.
EQL has been gaining in popularity this year as the benefits of equal weight are amplified in the current environment, leading to outperformance. EQL, which has $276 million in assets, has taken in $102 million in year-to-date inflows, the second most of ALPS’ ETFs, according to VettaFi.
EQL charges a net expense ratio of 28 basis points.
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