Invesco launches equal weight S&P 500 ETF in Canada

May 31st, 2018 | By | Category: Equities

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Invesco has launched the Invesco S&P 500 Equal Weight Index ETF (EQL CN), Canada’s first ETF to provide equally weighted exposure to the companies that make up the S&P 500.

Each index constituent is assigned a 0.2% weight at every quarterly rebalancing.

“One of the challenges investors face in tracking a market capitalization-weighted index is that the index may have concentration-risk issues,” said Jasmit Bhandal, head of ETF product strategy and development with Invesco Canada. “The S&P 500 is currently heavily concentrated in a few securities, with the FAANG companies – Facebook, Apple, Amazon, Netflix and Alphabet (Google) – making up almost 12% of the index. A significant portion of the returns are driven by these few securities.”

To help investors avoid the stock-specific risk of overweighting the largest companies, EQL tracks the S&P 500 Equal Weight Index, which weights each company at 0.2% at each quarterly rebalancing.

The fund has a management fee of 25bps and is listed on the Toronto Stock Exchange.

While the equal-weight approach eliminates a common criticism of market cap-weighted benchmarks, the strategy may go through periods of relative underperformance – such as when the largest cap firms are experiencing a growth run beyond the return on the broad market. Such a scenario has played out in recent years, as the annualised return of the S&P 500 Equal Weight Index over five years is 12.6% versus 13.0% for the cap-weighted S&P 500.

The benefits of the strategy can be better seen over the past 10 years as the equal-weighted index has generated an annualised return of 10.5% compared with the cap-weighted S&P 500 which has generated an annualised return of 9.0%.

Investors can choose the currency exposure that best suits their unique investment goals: CAD-unhedged (EQL CN), USD-unhedged (EQL.U CN) and CAD-hedged (EQL.F CN)

This launch comes after Invesco’s recent acquisition of Guggenheim’s ETF business in the US which includes Guggenheim’s well-known equal-weight S&P 500. The recently rebranded PowerShares S&P 500 Equal Weight ETF (RSP US) launched in 2003. This fund is slightly cheaper than EQL with an expense ratio of 20bps and has assets under management of just under $15bn.

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