In this article, we will be discussing the Invesco S&P 100 Equal Weight ETF (EQWL), which offers a value-oriented approach to investing in U.S. bellwethers. Despite previous skepticism regarding U.S. mega-cap names, we will present a more optimistic analysis of EQWL due to several reasons.
Firstly, EQWL provides a compelling value proposition compared to other market-cap-weighted ETFs like the iShares Core S&P 500 ETF (IVV) and the iShares S&P 100 ETF (OEF). The fund achieves a slight value tilt while maintaining exposure to high-quality stocks. Unlike other equal-weight strategies, EQWL has shown some downside protection during market turmoil, as evidenced by its maximum drawdown compared to its peers.
However, EQWL does have a few drawbacks, such as its limited exposure to the growth factor. Now, let’s delve into the major points of EQWL’s strategy.
EQWL aims to track the S&P 100 Equal Weight Index, a recalibrated version of the S&P 100. It is important to note that EQWL has undergone several strategy changes in the past, rendering most of its trading history irrelevant. The most recent change occurred in June 2019 when it adopted its current index. Before that, it tracked the Russell Top 200 Equal Weight Index. More details can be found in the fund’s fact sheet.
As of November 12, EQWL holds a portfolio of 101 equities. The top ten holdings account for just 11.4% of the net assets, resulting in better risk dispersion compared to OEF, which allocates almost 47% to its top ten positions. EQWL also offers a significantly lower allocation to mega-cap stocks like Apple, Microsoft, and Amazon, which may be appealing to investors who are skeptical about their potential for further growth.
In terms of sector exposure, EQWL is substantially underweight in IT compared to OEF. Other sectors have seen smaller weight reductions, such as communication, while the energy sector is similar between the two funds. EQWL also has larger weights in old-economy sectors like consumer staples, financials, and industrials, which may provide more comfortable valuations.
When it comes to factor exposures, EQWL outperforms OEF and IVV in several key parameters. It has a lower average market capitalization, resulting in better valuation metrics. EQWL’s earnings yield and price/sales ratio are more favorable compared to OEF. Additionally, a substantial portion of EQWL’s holdings has a higher quant valuation rating, showcasing the fund’s emphasis on quality.
In terms of performance, EQWL has delivered solid returns compared to its peers. Although it underperformed IVV and OEF during the July 2019–October 2023 period, it outperformed the Goldman Sachs Equal Weight U.S. Large Cap Equity ETF (GSEW) and the Invesco S&P 500 Equal Weight ETF (RSP). EQWL also experienced a less severe decline during the 2022 bear market.
Other notable performance metrics include upside and downside capture ratios. EQWL has a lower downside capture ratio compared to its peers, indicating better immunity to bear markets.
In conclusion, EQWL is a smart-beta ETF that may appeal to investors who are skeptical about mega-cap stocks and prefer exposure to old-economy bellwethers. Despite its drawbacks, such as a higher expense ratio and limited exposure to the growth factor, EQWL offers a compelling value proposition without compromising on quality.
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