Invesco has launched the Invesco S&P 500 Equal Weight Communication Services ETF (EWCO US) on NYSE Arca.
Invesco now offers a suite of 11 equally weighted S&P 500 sector ETFs.
The fund provides equally weighted exposure to the constituents of the Communications Services sector of the S&P 500 Index.
The sector was unveiled by S&P Dow Jones Indices and MSCI, the co-creators of the Global Industry Classification Standard (GICS), in November 2017 following a consultation with investors.
The shake-up revamped the existing Telecommunications Services sector to include those companies involved more widely and directly in the new communication era, including selected companies from the Information Technology and Consumer Discretionary sectors.
The reclassification became effective on 21 September 2018.
The underlying reference for the ETF is the S&P 500 Equal Weight Communication Services Plus Index which rebalances quarterly in March, June, September and December. There are currently 26 constituents of the index which equates to an approximate 3.8% weight each at rebalance.
An equal-weighted investment approach helps investors to diversify away from the stock specific risk of the largest constituents in traditional market cap-weighted indices. Proponents of the approach argue that market cap-weighted indices inherently overweight overvalued companies and underweight undervalued companies, contrary to conventional investment wisdom.
Indeed, there is significant idiosyncratic risk in the SPDR Communication Services Select Sector Fund (XLC US), which tracks the conventional market cap-weighted version of the sector, with Google parent Alphabet and Facebook accounting for almost 40% of the fund.
Alphabet’s ‘C’ and ‘A’ share classes command weights of 11.3% and 11.1% respectively, while Facebook accounts for 16.9%. The is significant stock-specific risk in next largest holdings, too: Walt Disney (5.0%), Verizon (4.9%), and Comcast (4.8%).
Investors who are concerned with the concentration of risk within these names may find Invesco’s equal-weighted approach a better fit.
The fund complements ten similar Invesco ETFs, inherited through its recent acquisition of Guggenheim’s ETF business, which target other GICS sectors of the S&P 500 Index. These include funds offering exposure to consumer discretionary, consumer staples, energy, financials, health care, industrials, materials, information technology and utilities stocks.
Similar to the other funds in the suite, EWCO comes with an expense ratio of 0.40%.