The ETF space may feel like a new, trendy offering in the investing world, but ETFs have been around for quite some time. Indeed, the most popular among them, the SPDR S&P 500 ETF Trust (SPY) hit its 30th anniversary recently. The equal-weighted ETF, EQL, launched about 15 years ago and has shown some appealing long-term performance, which, combined with its approach, may make it worth revisiting in the second half of this year.
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The Alps Equal Sector Weight ETF (EQL), has returned 12.8% over the last five years, per SS&C ALPS Advisors. The strategy’s five-year return far outpaces both its ETF Database Category and Factset Segment averages in that time, per ETF Database data. Those averages sit at 4.8% and 2.9%, respectively. Furthermore, over the last year, the strategy has returned 20.8%, also outperforming its averages in that time.
The Case for EQL as a Long-Term ETF
Its long-term ETF performance may owe at least in part to its approach. The strategy looks to equally weight sectors via the SPDR fund suite. For example, it includes the Technology Select Sector SPDR Fund (XLK) and the Financial Select Sector SPDR Fund (XLF) at the same weight per ETF Database.
That has helped its long-term ETF performance outperform its averages, while also presenting a solid return on its own. EQL charges a 25 basis point (bps) fee to craft that list. Its AUM sits at about $350 million. So, what role can it play moving forward?
Concentration risk in the S&P 500 points right to an equally weighted approach. Spreading out a portfolio across sectors can limit risk from a particularly tech-heavy top side of the market. For investors looking for a strategy that appeals right now and in the long term, EQL may appeal.
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