If you’re an advisor or investor that has at least some exposure to a cap-weighted S&P 500 index fund or exchange traded fund – something that likely applies to a lot of readers – there’s a fair chance you’ve noticed these allegedly diverse products aren’t as diverse as some market participants believe.
Sure, an ETF like the SPDR S&P 500 ETF Trust (SPY) holds a lot of stocks – 503 to be precise – but that deep bench doesn’t correlated with diversification. Not when three stocks alone combine for almost 21% of the index and thus the corresponding ETFs.
Of course that concentration risk is also evident at the sector level. As of July 28, SPY had a technology weight of 33. 79%, or roughly the same allocation devoted to the ETF’s second- through fourth-largest sector exposures combined. Some ETFs offer more purity when it comes to S&P 500 sector diversity. The Xtrackers S&P 500 Diversified Sector Weight ETF (SPXD) is a new kid on that block.
SPXD, which debuted last week as the issuer’s first new ETF of 2025, could be an appealing tactical consideration for advisors and investors that want an S&P 500 vehicle with more sector breadth. Translation: SPXD is a departure from its cap-weighted established rival because it’s not a quasi-tech ETF.
SPXD Particulars
The new DWS ETF follows the S&P 500 Diversified Sector Weight Index. That gauge has a straight-forward objective, indicating SPXD itself is easy for end users to understand.
“The S&P 500® Diversified Sector Weight Index reweights companies within the S&P 500 with the goal of reducing concentration risk and sector imbalances,” according to S&P Dow Jones Indices. “The index equally weights each sector, sub-sector, industry, sub-industry and business activity in the S&P 500 using Syntax’s Functional Information System (FIS®) framework. Within each business activity, the index weights stocks proportionally to revenue generated within that business activity. ”
Put simply, while the cap-weighted S&P 500 and the corresponding index funds have double-digit weights to just three sectors, that number doubles in SPXD. Additionally, the new ETF’s tech weight is just 14. 77%, indicating it can be paired with a growth fund or another tech-heavy vehicle.
A nifty feature with SPXD is that, arguably more so than established competing products, it provides a better barometer of S&P 500 member firms’ various business activities, implying the fund could be a fine proxy on the health of the U. S. economy.
“The Index doesn’t just diversify by broad sectors or equally by number of stocks — it seeks to diversify by economic reality,” said Henry Wu, Head of Xtrackers Products US, in a statememt. “In a world where companies generate revenue across multiple business activities, SPXD addresses that complexity in a rule-based approach. With the volatility witnessed in the US equity market, it’s a timely innovation for investors seeking economic diversification in equity exposure. ”
Another SPXD Perk
In the first half of this year, 1,308 new exchange traded products came to market on a global basis. That’s a record for the first six months of a year. So it’s accurate to say ETF competition remains as intense as ever, implying new ETFs like SPXD needs to do something to stand out.
A reasonable fee is one of way of accomplishing that objective and SPXD checks that box with an annual expense ratio of 0. 09%, or $9 on a $10,000 investment.
Yes, that’s pricier than what investors find on the cheapest cap-weighted S&P 500 ETFs, but it should also be noted SPXD’s fee is well below what’s found on other spins on the S&P 500 as well as other large-cap equal-weight sector strategies.
