Communication Services Sector Gets An Equal-Weight ETF

The communication services sector officially debuted in September, bringing a new look to the sleepy telecommunications sector. Now, communication services has its first equal-weight exchange traded fund.

The Invesco S&P 500 Equal Weight Communication Services ETF EWCO debuted Wednesday.

What Happened

Invesco, the fourth-largest U.S. ETF issuer, is one of the largest sponsors of equal-weight ETFs, most of which Invesco added via its acquisition of Guggenheim's ETF suite. That group includes the Invesco S&P 500 Equal Weight Portfolio RSP, one of the largest equal-weight ETFs.

The new EWCO targets the S&P 500 Equal Weight Communication Services Plus Index, the equal-weight counterpart to the Communication Services Select Sector Index. That benchmark includes exposure to software companies, media and online retailers.

Why It's Important

The Communication Services Select Sector SPDR XLC, which debuted in June, was the first ETF dedicated to the communication services sector. That ETF is cap-weighted and follows the Communication Services Select Sector Index. Home to $3.62 billion in assets under management, XLC is a cap-weighted ETF.

Like XLC, the new EWCO is home to 26 stocks, but as an equal-weight ETF EWCO features significant weighting differences relative to cap-weighted rivals. XLC allocates about 39 percent of its weight to its top three holdings: Facebook Inc. FB and the two share classes of Alphabet Inc. GOOG.

EWC doesn't allocate more than 5.26 percent to any of its holdings and neither Alphabet nor Facebook are among the new ETF's top 10 holdings. Twitter Inc. TWTR is EWCO's largest holding.

What's Next

The equal-weight methodology has proven credible over long-term holding periods with broad market funds, such as RSP. In some cases, investors have also embraced equal-weight ETFs at the sector level in an effort to avoid concentration risk that is a byproduct of some cap-weighted sector strategies.

EWCO charges 0.40 percent per year, or $40 on a $10,000 investment.

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