Communication is key, and yet another way to play the reopening trade. ETF investors seeking a pure play on the communications sector can look to funds like the Invesco S&P 500 Equal Weight Communication Services ETF (EWCO).
FX Street recently cited communications as one of the improving sectors amid the reopening. Stock holdings in EWCO include familiar communications names like T-Mobile and Verizon Communications, but also big tech names like Facebook and Netflix.
“Relative Rotation Graphs, commonly referred to as RRGs, are a unique visualization tool for relative strength analysis,” Stock Charts explained. “Chartists can use RRGs to analyze the relative strength trends of several securities against a common benchmark, and against each other. The real power of this tool is its ability to plot relative performance on one graph and show true rotation.”
Below is the actual graph:
EWCO, which is up about 20% year-to-date, seeks to track the investment results of the S&P 500® Equal Weight Communication Services Plus Index. The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index.
The underlying index is composed of all of the components of the S&P 500® Communication Services Plus Index, an index that contains the common stocks of all companies included in the S&P 500® Index that are classified as members of the communication services sector, as defined according to the Global Industry Classification Standard (GICS). The fund uses a mix of allocation styles, but primarily operates within large cap value, blend, and growth, with some mid cap value and blend styles added in.
History Favoring an Equal Weight Strategy?
An Invesco “Strategy Insights” report recently highlighted the benefits of using an equal-weighted investment approach. The approach includes diversification potential and historically higher returns when comparing the S&P 500 Index and S&P 500 Equal Weight Index (EWI).
“Due to market-cap weighting, performance of the S&P 500 Index can be dominated by a small number of stocks,” the report said. “The 50 largest securities in the index represent nearly 50% of its weight, leaving the next 450 stocks to account for the remaining 50%. The top 50 stocks in the S&P EWI, on the other hand, comprise just 11% of that index.”
“Equal weighting means every stock has the same potential influence on the returns of the S&P EWI, whereas in the S&P 500 Index, a stock with a weight of 2% has 10 times the influence of one with a weight of just 0.2%,” the report added.
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