Key Takeaways:
EQL has gained 5.92% year-to-date compared to SPY’s 0.89% return as equal weighting captures broader market strength.
The fund allocates roughly 9% to each sector, avoiding SPY’s 34% concentration in technology.
Eight out of 11 equal-weighted sectors outperformed their cap-weighted versions in the first quarter.
The performance gap highlights how EQL’s equal sector weighting strategy is capturing strength across the broader market that gets overshadowed in traditional market cap indexes. While SPY struggles under the weight of lagging mega-cap technology stocks, EQL’s structure ensures no single sector dominates the portfolio.
EQL invests in equal proportions across all 11 Select Sector SPDR funds and automatically rebalances back to an equal weighting quarterly, according to the fund’s factsheet. Each sector receives roughly 9% of the portfolio, compared to SPY’s concentration of 33.9% in information technology or 12.5% in financials.
The equal-weighting advantage was particularly clear over the past three months, with EQL gaining 3.3% while SPY fell 1.03%, ETF Database shows. The outperformance reflects a broader shift in market leadership, with eight out of 11 equal-weighted sectors topping their cap-weighted counterparts in the first quarter, according to S&P Dow Jones Indices data.
See more: How Equal-Weighting Is Winning in a Concentrated Market
Market Breadth Favors Equal Weighting
The widespread outperformance across equal-weighted sectors shows strength beyond just the largest companies. Energy led both approaches but posted a 38.4% gain in equal-weighted form versus 38.2% for the cap-weighted version in the first quarter, S&P Dow Jones Indices shows. Materials jumped 13.9% on an equal-weighted basis compared to 9.7% cap-weighted.
Technology showed the widest gap, with equal-weighted exposure falling just 0.3% while the cap-weighted sector dropped 9.1%, according to the S&P data. The difference stems from tech mega-caps dragging down the cap-weighted index while smaller technology companies held up better.
In SPY, energy represents just 3.4% of assets while utilities account for 2.4%, according to State Street. EQL holds energy at 8.4% and utilities at 9.1%. Communication services, which makes up 10.6% of SPY, receives just 8.9% in EQL. Real estate gets 9.2% in the equal-weighted fund versus 1.95% in SPY.
EQL charges a 0.27% expense ratio after fee waivers and holds $673.4 million in assets, the factsheet shows. The fund launched in July 2009 and has returned nearly 26% over the past year, according to ETF Database.
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