Throw Caution to the Wind and Leverage an Equal-Weight Strategy

A one-two punch of inflation and geopolitical tensions in Ukraine is causing market volatility that might spook most investors, but for traders, it spells opportunity. Nonetheless, even traders with ice water in their veins may want to hedge their bets by not over-concentrating their positions.

One way to address volatility is to reduce concentration risk by not proverbially putting all eggs in one basket, or, in the case of the capital markets, 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.”

Outpacing the S&P 500

Traders looking to utilize an equal-weight strategy but who also want to maximize upside by doubling exposure to the S&P 500 can use the Direxion Daily S&P 500 Equal Weight Bull 2x Shares (EVEN). The fund tracks the S&P 500 Equal Weight Index (SPXEWTR), which consists of all of the components of the S&P 500® Index.

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 re-balance.

When placed side by side with the Direxion Daily S&P 500 Bull 2X Shares (SPUU), EVEN is up 2.3% versus SPUU’s loss of 3.4% so far in 2022. EVEN just debuted at the beginning of the year, and thus far, it’s proving its mettle during volatile times.

EVEN Chart

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