Is ALPS Equal Sector Weight ETF (EQL) a Strong ETF Right Now?
Launched on 07/07/2009, the ALPS Equal Sector Weight ETF (EQL) is a smart beta exchange traded fund offering broad exposure to the Style Box - Large Cap Blend category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is managed by Alps. EQL has been able to amass assets over $286.49 million, making it one of the average sized ETFs in the Style Box - Large Cap Blend. This particular fund seeks to match the performance of the NYSE Select Sector Equal Weight Index before fees and expenses.
The NYSE Equal Sector Weight Index comprises of all active Select Sector SPDR ETFs in an equal weighted portfolio. These sector includes Consumer Discretionary, Consumer Staples, Materials, Energy, Technology, Utilities, Financial, Industrial, Health Care & Real Estate.
Cost & Other Expenses
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Operating expenses on an annual basis are 0.27% for EQL, making it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 2.13%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
Looking at individual holdings, Energy Select Sector Spdr Fund (XLE) accounts for about 11.41% of total assets, followed by Utilities Select Sector Spdr Fund (XLU) and Materials Select Sector Spdr Fund (XLB).
EQL's top 10 holdings account for about 92% of its total assets under management.
Performance and Risk
The ETF has lost about -12.35% so far this year and is down about -8.91% in the last one year (as of 10/26/2022). In the past 52-week period, it has traded between $88.15 and $110.50.
The ETF has a beta of 0.94 and standard deviation of 23.58% for the trailing three-year period, making it a medium risk choice in the space. With about 12 holdings, it has more concentrated exposure than peers.
Alternatives
ALPS Equal Sector Weight ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Core S&P 500 ETF (IVV) tracks S&P 500 Index and the SPDR S&P 500 ETF (SPY) tracks S&P 500 Index. IShares Core S&P 500 ETF has $291.86 billion in assets, SPDR S&P 500 ETF has $359.17 billion. IVV has an expense ratio of 0.03% and SPY charges 0.09%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Blend.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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ALPS Equal Sector Weight ETF (EQL): ETF Research Reports
SPDR S&P 500 ETF (SPY): ETF Research Reports
Energy Select Sector SPDR ETF (XLE): ETF Research Reports
Materials Select Sector SPDR ETF (XLB): ETF Research Reports
Utilities Select Sector SPDR ETF (XLU): ETF Research Reports
iShares Core S&P 500 ETF (IVV): ETF Research Reports
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