Currency Hedged Betashares S&P 500 Equal Weight ETF (ASX: HQUS) $49.80

One way we like to play a potential broadening of the US equity rally is through the Betashares S&P 500 Equal Weight Currency Hedged ETF (HQUS), which provides exposure to the same 500 companies as the traditional S&P 500, but with a very different portfolio composition. Rather than weighting companies by market capitalisation, HQUS allocates approximately 0.2% to each stock at quarterly rebalancing, substantially reducing the dominance of mega-cap technology names such as Nvidia, Apple and Microsoft. This is particularly relevant today, with the 10 largest companies accounting for almost 40% of the traditional S&P 500.

Equal weighting provides greater exposure to sectors such as financials, industrials, healthcare and consumer discretionary, while significantly reducing the concentration in technology. This is the type of exposure we believe could benefit if US bond yields have peaked and the equity rally starts to broaden beyond the technology giants that have dominated returns over recent years.

Importantly, HQUS also hedges its US dollar exposure back to the Australian dollar, differentiating it from the unhedged Betashares QUS ETF. With the $A currently trading around US69c, this removes much of the currency risk associated with investing in US equities if the $A strengthens, as we believe it will. The downside to hedging is weaker performance is markets pullback from here. Normally, in a risk off environment, the AUD would fall providing a cushion to returns from unhedged exposure.

The fund has around $300m under management and charges a management fee of 0.32% p.a, compared with just 0.04% for IVV. While more expensive than traditional passive US exposure, we believe the additional cost is reasonable given the diversification benefits and currency hedging.

• HQUS is an interesting way to retain exposure to the US equity market while reducing reliance on the mega-cap technology trade.