Jeffrey Gundlach’s DoubleLine Capital has launched a new smart beta ETF in the US providing equally weighted exposure to public companies within the Fortune 500.
The Fortune 500 ranks the 500 foremost public and private corporations in the United States based on their total revenues.
The DoubleLine Fortune 500 Equal Weight ETF (DFVE US) has been listed on NYSE Arca with an expense ratio of 0.20%.
The Fortune 500, published annually, ranks the 500 foremost public and private corporations in the United States based on their total revenues. To qualify, companies must be incorporated and operational within the US and must submit their financial reports to a regulatory body.
As of 2020, these titans of industry collectively accounted for about two-thirds of the total US Gross Domestic Product (GDP), generating around $14.2 trillion in revenue, earning $1.2 trillion in profits, and boasting a combined market value of $20.4 trillion.
The new fund is linked to the Barclays Fortune 500 Equal Weighted Total Return Index which screens the Fortune 500 universe to remove private corporations, master limited partnerships (MLPs), subsidiaries owned by other corporations, and entities failing to meet specific liquidity benchmarks.
The index is reconstituted annually and rebalanced to an equal weight every quarter.
Proponents of an equal-weight investment approach highlight how the strategy mitigates one of the most common criticisms of market capitalization-weighted indices – the concentration risk imposed by the largest constituents. The top ten constituents of the market capitalization-weighted version of the Fortune 500 account for nearly a third of the total weight, as of the end of January 2024.
As well as enhanced diversification at the stock level, equally weighted US large-cap equity indices tend to offer reduced sector risk with the contribution of information technology stocks notably trimmed.
Despite diversification benefits, equal-weighted approaches may go through periods of relative underperformance, such as in momentum-driven markets and when larger firms experience growth runs beyond the return on the broad market.
Investors interested in a balanced investment in US equities might also wish to explore the $49 billion Invesco S&P 500 Equal Weight ETF (RSP US), which offers uniform exposure to the constituents of the S&P 500. RSP also comes with an expense ratio of 0.20%.