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Inside ALPS' New Sector Leaders' ETF - ETF News And Commentary

Zacks Equity Research

Probably, every investor dreams of beating the benchmark index. And to fulfill this investor desire, issuers are increasingly resorting to smart-beta or unique approaches. After all, with the industry presently sporting close to 1,745 products and sitting on an asset base of $2.13 trillion, it is tough to wait out competition with a product that lacks novelty.


To serve the need of the hour, ALPS recently launched an ETF, which does not focus on a specific sector or style like most, but uses the equal-weighted strategy as its winning mantra. To do so, the issuer targets the U.S. market itself, which is sitting pretty right now amid global market gloom spread by ‘Grexit’ worries and the Chinese equities sell-off. Below we give the details of this ETF (read: Top ETF Stories of June).


ALPS Sector Leaders ETF (SLDR) in Focus


The fund looks to track the S-Network Sector Leaders Index which is a benchmark of the U.S. large cap equities with equally weighted sector exposure. The index starts screening stocks from the S&P 500 index emphasizing high quality and growth scores. From every nine sectors of the S&P 500, five securities with the highest growth criteria are chosen. The fund charges 40 bps in fees.


Investors should also note that the product uses an equal-weight methodology both in terms of individual securities and sectors. As a result, each company takes up about 2% of the total while each of the sectors has a roughly 11% weighting. Cigna Corp (2.64%), Alexion Pharma (2.45%) and Edward Lifesciences (2.39%) are top three holdings of the fund (read: PowerShares Plans Equal-Weight ETF Amid Volatile Market).  


How Does it Fit in a Portfolio?


This ETF could be an interesting fit for investors who want a slight smart-beta approach, but want to stay invested in the broad markets. The product could also be an intriguing addition for those seeking an equal-weight strategy.


The ETF is a fairly priced option as the fees on this product is in line with the average expense ratio of the U.S. large-cap blend equities ETFs. However, costs are roughly 4.5 times higher than what the biggest U.S. large-cap blend ETF – SPDR S&P 500 (SPY) – charges. The fund’s strategic approach might have caused it to charge higher than the plain vanilla market-cap oriented funds like SPY, Core S&P 500 ETF (IVV) and S&P 500 ETF (VOO) (ssee all large cap ETFshere).


In a nutshell, the fund offers huge diversification benefits with lower volatility as it provides meaningful exposure to every sector of the market. None of the sectors dominates the fund’s returns, thereby preventing the portfolio from heavy concentration.


ETF Competition


While SLDR may have a lucrative investment objective, the ETF will be facing some stiff competition for assets from some of the players in the U.S. large-cap blend equities ETFs.  Among these,     S&P Equal Weight ETF (RSP), Russell 1000 Equal Weight Portfolio (EQAL) and Equal Sector Weight ETF (EQL) seem to be the top contenders.


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SPDR-SP 500 TR (SPY): ETF Research Reports
 
ISHARS-SP500 (IVV): ETF Research Reports
 
VANGD-SP5 ETF (VOO): ETF Research Reports
 
GUGG-SP5 EQ ETF (RSP): ETF Research Reports
 
PWRSH-R1000 EW (EQAL): ETF Research Reports
 
ALPS-EQL SEC WT (EQL): ETF Research Reports
 
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