This Equal-Weight ETF Has a Lot of Perks

Core Insights - There is increasing focus on a limited number of stocks that dominate cap-weighted indexes, prompting a review of equal-weight methodologies [1][3] Group 1: ETF Performance - The ALPS Equal Sector Weight ETF (EQL) has outperformed the S&P 500 Equal-Weight Index by 140 basis points since the beginning of the year [2] - EQL's annualized volatility is 210 basis points lower than that of the S&P 500 equal-weight index [2] Group 2: Market Imbalance - By December, only 2% of S&P 500 constituents contributed nearly 40% of total performance, indicating a significant imbalance in market exposure [3] - The dominance of mega-cap growth stocks has led to a potential oversight of the benefits of equal weighting and ETFs like EQL [4] Group 3: Sector Contributions - Despite a small group of companies driving returns, various sectors, including healthcare, have shown positive performance, contributing to market upside [5] - All major sectors have posted positive year-to-date performances, highlighting improving sector breadth relevant to EQL [5] Group 4: Diversification Benefits - Nearly 100 non-tech S&P 500 members have increased by at least 25% this year, with 313 components trading above their 200-day moving averages [6] - The top 10 performing S&P 500 members account for just over 2% of the cap-weighted index, underscoring the importance of diversification [6] Group 5: Strategic Diversification - Diversification remains essential and should be part of a deliberate investment strategy rather than a reaction to market discomfort [7] - Strong, concentrated leadership periods challenge investment discipline, necessitating a balance between risk awareness and market participation [7]