Equal-weight ETFs attracted strong interest in the third quarter as investors worried about excessive stock market concentration, according to Morningstar’s European ETF Asset Flows Update.
Although US large-cap equity ETFs remain the market’s favoured exposure, equal-weight alternatives enjoyed strong inflows following the market volatility in July and August.
Funds tracking the S&P 500 Equal Weight index pulled in hefty flows, with three appearing in the top 10 of the US Large-Cap Blended Equity category for Q3.
The Xtrackers S&P500 Equal Weight ETF (XDEW), the iShares S&P 500 Equal Weight ETF (ESWP) and the XTrackers S&P 500 Equal Weight ESG ETF (XSZP) booked net inflows of €2.1bn, €1.4bn and €1.1bn over the quarter respectively.
Indeed, XDEW and ESWP topped the category’s inflow charts for September, indicating renewed demand for the strategy following volatility in the summer.
This marks a turnaround for equal-weight ETFs which largely struggled for demand in Q2. XDEW suffered net outflows over the quarter, while ESWP and XSXP both saw subdued inflows.
Jose Garcia-Zarate, associate director of passive strategies at Morningstar, said the revived interest in equal-weight strategies: “suggests that some investors are becoming wary of the high concentration in tech stocks found in traditional market-cap-weighted benchmarks.”
