Equal weight strategies performed exceptionally well on a relative basis last year when compared to the S&P 500.
The ALPS Equal Sector Weight ETF (EQL ) is designed to offer more balanced exposure to the U.S. equity market than funds tracking the S&P 500, such as the SPDR S&P 500 ETF Trust (SPY ). The fund’s sector equal weight strategy has the added benefit of avoiding the potentially adverse impact of rallies or crashes in specific sectors of the economy.
EQL returned -10.7% in 2022, compared to the S&P 500 Index’s decline of -18.11% during the same period, each on a total return basis. Over a three-year period ending January 3, EQL is up 27.8% compared to the S&P 500’s increase of 24.1%, according to YCharts.
EQL utilizes a fund-of-funds ETF structure, delivering exposure to the U.S. Large Cap Equity market by investing equal proportions in 11 Select Sector SPDRs. EQL, which rebalances quarterly, delivers moderate yet meaningful exposure to every sector of the market, according to ALPS.
In maintaining an equal-weight sector approach, compared to SPY, EQL overweights energy, communication services, industrials, consumer staples, utilities, real estate, and materials. In doing that, EQL underweights information technology, healthcare, consumer discretionary, and financials when compared to the cap-weighted fund.
The fund’s tilt toward defensive sectors has contributed to EQL’s outperformance this year, while also avoiding some of the downfall of crashes in growthier segments of the market.
EQL increased in popularity in 2022 as investors looked for a more balanced approach in a challenging market environment. EQL, which has $259 million in assets, saw $71 million in inflows during the year, the second most of ALPS’ lineup of ETFs, according to VettaFi.
EQL charges a net expense ratio of 28 basis points.