Investors face an intriguing but complicated new year in 2025. U.S. markets look set for a soft landing after several rate cuts. Key market indexes appeal with strong ends to 2024, as well. On the other hand, there are big risks on the horizon. The coming administration looks dead set on implementing some potentially damaging tariffs. At the same time, the tech sector, which has driven so much growth this year, may be too reliant on a bubble-shaped trend in AI. Those factors may point to an equal weight ETF, with one fund in particular having beaten SPY over one year.
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That fund, the ALPS Barron’s 400 ETF (BFOR ), has returned 39.3% over one year per YCharts. That has outperformed the SPDR S&P 500 ETF Trust (SPY ) in that time, with SPY returning 33.4% in the same time frame. So, how has the equal weight ETF BFOR produced that return?
The fund looks at the U.S. equity space and picks firms based on fundamental factors, and then equal weights those names. Its manager applies a growth at a reasonable price (GARP) methodology to identify the 400 highest-scoring firms. The ETF caps sectors at 20%, but does tend towards smaller companies overall with its GARP approach.
By equal weighting firms and capping sectors, however, the fund can distribute the risks found in the U.S. economy. While that may cap some upside, the fund has still managed to beat key ETF leader SPY. At the same time, added rate cuts could spread out benefits to multiple sectors. Where a market cap-weighted portfolio might capture more tech upside, it would also see more downside if AI suffers. BFOR’s equal weight approach level sets sectors and provides a safer but still positive outlook for the new year.
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