Equal sector investing, a strategy in which a portfolio is divided equally among the economic sectors of the market, beat the returns of the S&P 500 in 2009 for the 10th year in a row according to ALPS Distributors.
“Most equal-weight strategies are based at the stock level,” states Jeremy Held, Director of Investment Strategy and Research for ALPS Distributors, Inc. “Equal sector investing is an important extension of the equal-weight concept in that it addresses sector risk, which may be a much more important and fundamental risk to client portfolios than individual stocks.”
According to Held, the out-performance of an equal sector strategy is partially attributable to its risk management characteristics. Over the last 30 years the largest annual declines in the S&P 500 were precipitated by a crash in the market’s largest sector. In 1981, it was Energy stocks. In 2000, it was Technology. Most recently it was the Financial sector.
An equal sector strategy can minimize the negative impact of any one sector on the entire portfolio. At the same time by offering meaningful exposure to each sector of the market, it allows investors the ability to participate in market rallies regardless of where they occur.
In June 2009, ALPS launched the ALPS Equal Sector Weight ETF (EQL) an ETF of ETFs that delivers exposure to the US Large Cap Equity market by investing equal proportions in each of the 9 Select Sector SPDRs.
For more ETF investing choices, see the sector ETF directory.