The latest readings of US inflation suggest inflationary pressures might have peaked and are prompting improved investor sentiment across the Atlantic, with many US stocks moving back up.

There is a smart, low-cost way to play this improving picture through exchange-traded fund Xtrackers S&P 500 Equal Weight (XDWE). It provides exposure to US stocks with a twist.

The S&P 500, along with the Dow Jones Industrial Average and Nasdaq Composite, is one of the benchmark US stock indices.

Launched in its current form in 1957, it includes 500 of the largest businesses listed on US exchanges selected both on their size and on
other criteria like how easy the shares are to trade and financial viability.

Like most major indices the S&P 500 is market cap weighted, or in other words the stocks with the largest market valuations have the most influence on its performance.

This means the index is heavily dominated by just a handful of companies. Its top 10 constituents have a weighting of nearly 30%. As a consequence its fortunes are heavily tied to the likes of Microsoft (MSFT:NASDAQ), Apple (APPL:NASDAQ) and Amazon (AMZN:NASDAQ).

For an ongoing charge of 0.25% the Xtrackers ETF tracks an equal-weighted S&P 500 index which means each constituent has a fixed weight of 0.2%. This provides more genuine diversification for investors looking for exposure to US stocks.

For example, while the S&P 500 has a 27.9% weighting to the technology sector, the S&P 500 Equal Weight index has a little more than half that allocation at 15.8%.

Amid all the focus on the big US tech names, it is easy to forget just how diverse and vibrant the US stock market can be.

Just look at Enphase Energy (ENPH:NASDAQ), which has seen its share price increase more than 350-fold in the last five years. It makes kit which converts direct current from solar modules into alternating current for use in the home and has nearly half the market for residential installations in the US.

When big tech was flying high the Xtrackers ETF’s performance struggled to keep pace but over the last two years it compares favourably. Its total return in sterling clocks in at 49% versus 39% for the vanilla S&P 500 index.

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