Is ALPS Equal Sector Weight ETF (EQL) a Strong ETF Right Now?

Designed to provide broad exposure to the Style Box - Large Cap Blend category of the market, the ALPS Equal Sector Weight ETF (EQL) is a smart beta exchange traded fund launched on 07/07/2009.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is managed by Alps. EQL has been able to amass assets over $202.60 million, making it one of the average sized ETFs in the Style Box - Large Cap Blend. Before fees and expenses, EQL seeks to match the performance of the NYSE Select Sector Equal Weight Index.

The NYSE Select Sector Equal 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

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Operating expenses on an annual basis are 0.28% for this ETF, which makes it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 1.77%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

When you look at individual holdings, Xlktechnology Select Sector Spdr Fund accounts for about 9.34% of the fund's total assets, followed by Xlyconsumer Discretionary Select Sector Spdr Fund and Xlffinancial Select Sector Spdr Fund.

The top 10 holdings account for about 91.09% of total assets under management.

Performance and Risk

The ETF has added about 20.81% and is up about 29% so far this year and in the past one year (as of 10/12/2021), respectively. EQL has traded between $75.14 and $104.58 during this last 52-week period.

EQL has a beta of 0.96 and standard deviation of 22.21% for the trailing three-year period, which makes the fund 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 $291.19 billion in assets, SPDR S&P 500 ETF has $387.35 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
 
iShares Core S&P 500 ETF (IVV): ETF Research Reports
 
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