ALPS launched a new ETF-of-ETFs Tuesday designed to provide equal-weighted exposure to the various sectors of the U.S. economy.

The new ALPS Equal Sector Weight ETF (NYSE Arca: EQL) takes an equal-weighted position in each of the nine Select Sector SPDR ETFs and rebalances that position on a quarterly basis. The fund is designed to avoid overinvesting in “bubble” sectors, such as telecom in 1999 or finance in 2007, and thereby achieve higher risk-adjusted returns. Looking backward, the EQL strategy has outperformed the S&P 500 by more than 3% per year over the past 10 years.

“EQL is an important extension of the equal-weight concept in that it addresses sector risk, which we consider to be a much more important and fundamental risk to client portfolios than individual stocks,” said Jeremy Held, ALPS director of product research, in a statement.

In a white paper supporting the launch, Held points out the enormous spread in sector returns over the years. For the 12 months ending June 30, 2008, for instance, the energy sector delivered a 24.86% return, while financials fell 42.29%. Unfortunately for investors, financials was the single largest sector weight in 2007. By avoiding these kinds of “crashes,” EQL hopes to deliver outperformance.

Advisers were seeing other applications as well.

“From the long side, one can now fence off sector exposure with ‘overweighting’ that will involve only three or four ETFs in total,” said Robert Dubois, senior vice president, The ETF Store. “That's a real positive, along with the internal rebalancing that will keep things in trim in a more tax-efficient way.”

The fund charges 0.55% in annual expenses, which includes the assumption of 0.21% in expenses for the underlying Select Sector SPDR ETFs.

The prospectus is available here.