AlphaPro Management Inc. has launched a new exchange traded fund to track the recently created S&P/TSX 60 Equal Weight Index.
The Horizons AlphaPro S&P/TSX 60 Equal Weight Index ETF began trading on the Toronto Stock Exchange on Wednesday under the symbol HEW.
The ETF will seek to replicate the performance of the Equal Weight Index, net of expenses. Standard & Poor’s launched the index in June as an equal weighted version of the S&P/TSX 60, the primary large cap benchmark for the Canadian equity market.
The Equal Weight Index is comprised of 60 of the largest and most liquid securities listed on the TSX. It assigns an equal weight to each of the constituent 60 Canadian stocks in the S&P/TSX 60 Index and is rebalanced on a quarterly basis. This contrasts with the market-capitalization weighting methodology used in the prominent S&P/TSX 60 Index, which does not get rebalanced.
The equal weight methodology scales back the prominence of the largest stocks and sectors in the S&P/TSX 60 Index. As of June 21, 2010, the last rebalance date of the Equal Weight Index, the 10 largest constituents represented less than 17% of the weight of the Equal Weight Index, compared to more than 45.4% of the weight of the S&P/TSX 60 Index. In addition, financial sector stocks represented 16.7% of the Equal Weight Index, compared to 32.9 % of the S&P/TSX 60 Index.
“Using an equal weight methodology versus a cap-weighted methodology can result in some subtle but meaningful differences in the composition of an index,” said Ken McCord, president of AlphaPro. “Using an equal weight methodology tends to lower the sector concentration of an index and assigns greater exposure to smaller companies in the index.”
McCord pointed out that the equal weight methodology allocates greater weighting to sectors such as industrials, healthcare, and consumer staples, which provides investors with greater diversification.
“At each quarterly rebalancing, the index reduces positions in stocks that have gone up the most and reallocates those proceeds to stocks that have lagged,” McCord added. “In effect, the equal weight index sells high and buys low.”
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New ETF tracks S&P/TSX 60 Equal Weight Index
Equal weight methodology provides investors with greater diversification
- By: Megan Harman
- July 14, 2010 July 14, 2010
- 10:23