Getting leveraged exposure to the S&P 500 means that traders are beholden to the over-concentrated holdings that include big tech names like Apple and Amazon. Now, they have another option.
Enter the newly launched Direxion S&P 500® Equal Weight Bull 2X Shares (EVEN) from Direxion. Traders can now have tangible exposure to the S&P 500, but also add an equal-weight strategy component to their trading principles, which could be necessary given the current market volatility.
One way to address volatility is to reduce concentration risk by not proverbially putting all eggs in one basket, or, in the capital markets case, one or a few stocks. This is where an equal-weight strategy can come into play.
Essentially, a strategy like this spreads exposure equally over various stocks so the biggest household names don’t get the most focus. As such, investors using such as a strategy can gain upside across a spectrum of stocks irrespective of market cap size.
“Equal weight is a type of proportional measuring method that gives the same importance to each stock in a portfolio, index, or index fund,” Investopedia explains. “So stocks of the smallest companies are given equal statistical significance, or weight, to the largest companies when it comes to evaluating the overall group’s performance.”
The Direxion S&P 500® Equal Weight Bull 2X Shares seeks daily investment results, before fees and expenses, of 200% of the performance of the S&P 500 Equal Weight Index (SPXEWTR). The index is an equal-weighted version of the S&P 500® Index.
Unlike the S&P 500® Index, which employs a float-adjusted market capitalization-weighted methodology, the index assigns each component security the same weight upon rebalance.
Outpacing the S&P 500
Within the past year, the S&P 500 Equal Weight index has been outpacing the baseline S&P 500. The equal-weight strategy is slightly ahead with a 17.2% gain versus the S&P 500’s 16.4%, highlighting the upside in the former amid market volatility.
2021 saw markets roiled by rising inflation fears as well as the ongoing pandemic that continues to remain a wild card in the markets today. As such, getting equal-weight exposure can help mitigate some volatility risk by avoiding over-concentration in certain stocks or being too heavyweight in a particular sector.
Having this strategy in a tradable format with EVEN gives traders access to the equal-weight strategy with the potential for amplified gains. Given its double dose of market exposure, however, only experienced traders should use these leveraged products.
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