NEW YORK (TheStreet) -- In the sliced-and-diced world of exchange traded funds, there's been a genuine breakthrough: the ALPS Equal Sector Weight ETF (EQL). The fund is an ETF that holds the nine Select Sector SPDRs in equal parts at 11.1%, subject to a quarterly rebalancing.
For anyone unfamiliar with the Select Sector SPDRs, State Street in 1993 created the S&P 500 SPDR (SPY) and followed it up with funds for nine of the 10 biggest sectors. (Tech and telecom are combined in one fund.)
The ALPS Equal Sector Weight ETF does away with the stock market's natural weighting of the sectors. (If one industry does well, it tends to gain a bigger weighting in the S&P 500.) That differs from the Rydex S&P Equal Weight (RSP), which targets the same 0.2% weight for each of the index's 500 stocks.
The biggest benefit of the ALPS fund is that holders may be underweight in the next sector to take down the equity market. Before the tech bubble popped in 2000, that industry had grown to represent 30% of the index. At the peak of the financial bubble (the peak in prices of financial stocks), that sector accounted for 23% of the S&P 500. At their respective lows, each of those industries had fallen by more than half. Equal weighting of the sectors would have resulted in less exposure to the "wrong" stocks, sparing investors from the brunt of market crashes.The fund's fact sheet shows that from Dec. 31, 1998, investors would have been better off by equal-weighting sectors. The back test benefits from being, at various times, underweight in technology, overweight in energy and underweight in financials. In periods of poor equity performance, equal weighting seems likely to outperform.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV