Alternative investment manager Direxion has launched an exchange-traded fund that provides investors with equal weighted exposure to the constituents of the NASDAQ-100 index.
The fund, called the Direxion NASDAQ-100 Equal Weighted Index Shares (Ticker: QQQE), is designed to provide investors with broader diversification and exposure to the holdings of this index, which Direxion says is over-weighted to a select number of companies and a heavy bias toward the technology sector. Moreover, larger companies in the index receive a higher weight than small companies, which can lead to a portfolio with an over concentration in a limited number of companies and industries.
In comparison, the methodology for the Direxion fund weights the holdings of the index equally, regardless of market capitalization or industry. In particular the fund includes 100 of the largest non-financial securities listed on NASDAQ, but instead of being weighted by market capitalization, each constituent is initially set at 1%. The index is reviewed and adjusted annually in December, but replacements may be made any time throughout the year. The index is rebalanced quarterly in March, June, September and December.
The fund’s net operating expenses are 35 basis points.
Direxion says this approach gives investors access to an equal-weighted investment strategy that is less reliant on the largest companies. Along with comparatively increased diversification, the firm says that equal weighting offers greater performance potential over cap-weighted strategies when smaller companies outperform their larger counterparts.
“This fund is designed to provide investors with balanced exposure and reduce concentration risk without overweighting potentially overvalued companies and underweighting undervalued companies,” said Daniel D. O’Neill, president and chief investment officer of Direxion, in a statement.
“Investors are increasingly embracing an equal weighting approach to complement other U.S. large cap equity strategies that tend to be more highly concentrated in a select number of industries.”
As of its March 14 rebalancing, the fund had the highest sector weightings in: information technology with 49%; consumer discretionary at 23% and health care at 16%. Consumer staples accounted for 4% of assets while telecommunication services had 1%, industrials, 5%. Finally, 2% of assets were in materials.
Tommy Fernandez writes for Money Management Executive.