Leaner, Meaner Sector ETFs

General Electric (GE) weighs in at 19.77% of the Industrial Sector SPDR, 19.67% of the iShares DJ Industrial Index Fund (IYJ) but only 1.91% of the equal weight industrial fund. As with the others, GE has been a laggard, trailing the Industrial Select Sector SPDR by 8% year to date.

The funds will have a 0.50% expense ratio and rebalance once a quarter. Prices move every day so the funds will be out of balance most of the time, but they will never be anywhere as lopsided as the cap-weighted funds. The thing here is not whether Procter and Gamble is 2.4% or 2.8% of the Equal Weight Staples Fund, but that it is not and never will be 17% of the fund.

These funds may be less than ideal now if you think we are close to the start of the next bear market. When the next downturn comes, it's likely that the equal weight funds will lag the cap-weighted funds. This does not make equal weighting a bad idea -- no product is likely to lead for the entire duration of a stock market cycle.

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