Reducing Stock-Level Risk With Equal-Weight Funds

The methodology that backs EQAL’s underlying index also mandates that the share portion of a potential constituent in a notional $5 billion portfolio cannot exceed 5% of the company’s float, ensures liquidity and that the benchmark remains investable. EQAL “is equally weighted across nine sector groups with each security within the sector receiving equal weight,” according to Invesco.

EQAL is up 45.40% over the past three years.

“Investors in market-cap-weighted indexes may not be quite as diversified as they think they are, due to concentration risk. Equal weighting is a potential solution,” said Invesco.

For more information on the equal-weight indexing methodology, visit our equal-weight ETFs category.