Most investors looking for and equal-weight exchange traded fund look first at its age but, If you look at the Power Shares Russell 1000 Equal Weight Portfolio (EQAL), you quickly realize that, sometimes, age doesn’t matter.
Tracking the Russell 1000 Equal Weight Index, EQAL debuted in December 2014. One of its direct competitors in the ETF market is the iShares Russell 1000 ETF (IWB) and, since December, it is handily been winning the competition.
If you look at the year-to-date to comparison it looks like EQAL is only slightly outperformed IWB but, if you go back to their December launch, the gap is much greater, with EQAL having better than a two-to-one margin over its competitors.
One of the main reasons for this is that, rather than merely assigning the same allocation to each holding in their fund without regard to the weight of each sector, EQAL instead applies an equal weight to 9 sectors as well as an equal weight to each security from those respective sectors.
Another reason that they have outperformed the IWB is that they overweigh energy and healthcare, allocating just 10.2% to both of those sectors respectively instead of the currently allocated 22.5% of the index. They do the same with financial service names, allocating a still commanding 10% of their weight to them in comparison to IWBs 17%.
Rolf Agather, the managing director of global research and innovation at Russell, recently explain the reason that he believes EQAL is performing so well, to whit; “Equal weight indexes are designed to include every sector within an investment universe while potentially lessening the impact of any one sector or company on overall index performance. And Russell’s equal weight approach of equal weighting sectors, and then companies within sectors, is unique,”