When investors think of an equal-weight ETF, they may initially think of their defensive qualities. In this top-heavy U.S. market environment, adding diversification away from concentration risk does appeal, of course. Yet it sometimes obfuscates the upside found in an equal-weight strategy. That may prompt investors to take a second look at the opportunities presented in the ALPS Sector Dividend Dogs ETF (SDOG ).
To be clear, SDOG doesn’t just equal-weight its holdings. The strategy, via its S-Network Sector Dividend Dogs Index, also equal-weights overall sectors. Taken together, SDOG allocates to 10 different sectors, from tech to finance and many others in between. Its caps don’t just have defensive or upside-oriented intentions, either. Strategies that lean on dividends can sometimes end up with a larger utilities or financials weight than makes sense, but the equal-weight-ETF approach limits that.
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Where, then, is the upside in such a strategy? Well, by spreading out one’s investment across 10 different sectors via a strategy like SDOG, the ETF can benefit from unlikely winners. If, say, financials were to suddenly spike due to a new development in digital payments or wallets — like a wildly popular new cryptocurrency that hits the mainstream — certain stocks might benefit.
SDOG's Equal-Weight-ETF Approach
At the same time, if consumer spending spikes this holiday season more than anticipated, SDOG could benefit if it has a higher weight toward the space than most other indexed ETFs. Even more intriguingly, if two sectors experience a synergistic spike that benefits them both, SDOG’s equal allocations could ride both positive trends.
SDOG charges a 36 basis point (bps) fee to invest in its index. While it has dipped somewhat recently, it remains a strong long-term option, returning 11.4% over the last three years. For investors looking for an interesting spin on an equal-weight ETF, SDOG may be worth watching.
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vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for SDOG, for which it receives an index licensing fee. However, SDOG is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of SDOG.
