Market Overview

Communication Services Sector Gets An Equal-Weight ETF

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 (NYSE: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 (NYSE: 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 (NYSE: 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. (NASDAQ: FB) and the two share classes of Alphabet Inc. (NASDAQ: 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. (NYSE: 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.

Related Links:

A New International Internet ETF

Check Out The Pet Industry ETF

Posted-In: Long Ideas News Sector ETFs New ETFs Top Stories Tech Trading Ideas ETFs Best of Benzinga


Related Articles (GOOG + FB)

View Comments and Join the Discussion!

Sell-Side Analysts: Take-Two Is Not Playing Games

The Election's Impact On Energy, Fracking