On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the Invesco S&P 500 Equal Weight Technology ETF (RSPT ) with Chuck Jaffe of Money Life. The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.
Invesco S&P 500 Equal Weight Technology ETF (RSPT)
Chuck Jaffe: One fun ETF on point for today and the experts to talk about it. Welcome to the ETF of the Week. Yes, this is the ETF of the Week podcast where we examine trending new, newsworthy, unique, and intriguing exchange traded funds with the experts from VettaFi. The "VettaFi.com":http://moneylifeshow.com/ site has a suite of tools and research that will help make you a savvier, smarter, and better investor in exchange traded funds. Todd Rosenbluth is head of research at VettaFi.
Todd, welcome back. Let’s dig into it.
Todd Rosenbluth: Yeah, great to be with you, Chuck.
Chuck Jaffe: Your ETF of the week is?
Todd Rosenbluth: The Invesco S&P 500 Equal Weight Technology ETF or RSPT.
Chuck Jaffe: Now, of course, equal weighting may be the most important thing here. Or is it technology for you, Todd? I mean, is it the tech play or the construction that makes this fund worth talking about right now?
Todd Rosenbluth: It’s the combination of those two. The technology sector led the market higher in 2023. It’s come out of the gate strong in 2024 and perhaps might continue to lead the market higher. But winners don’t always run and continue to run and continue to run. And so an equal-weighted approach that will sell some of the winners, or all of the winners, and buy back some of those companies that are underperforming but have a chance to succeed, we think is the right way to do this.
There’s a lot of concentration on Apple and Microsoft in the broader tech sector. This is an alternative and an equal weighted one at that.
Chuck Jaffe: Of course, we’ve spent this entire year with everybody talking about the Magnificent Seven stocks last year and this year and how they’ve been such a big part of the S&P 500, etc. Well, any technology-weighted index, they’d be there too. And it’s not that things, like in the video, are not in this portfolio.
They’re just in their equal weighting, but in equal weighting even then, construction matters because there are some equal weight funds that rebalance like every day and there are some that rebalance once a year. What’s the construct here? And is it the one that you like?
Todd Rosenbluth: RSPT rebalances on a quarterly basis. So we think that’s a reasonable amount of time for companies to demonstrate relative strength and success and then for us to see it pulled back, so that all of the positions are roughly 65 holdings within this ETF. So roughly one and a half percent weighting in each of these positions. These can obviously climb to 2% and higher things can fall to around 1% on a relative standing.
Well, we think it’s well diversified, and quarterly is a good way of rebalancing. You don’t want to have a daily rebalance that’s just too much turnover in the portfolio. You want to give smaller companies a chance or moderately sized companies a chance to succeed. And then we pare back.
Chuck Jaffe: No matter what anybody’s done. If you’ve invested in just about anything, you’ve got technology. So obviously we’re adding to technology. How big a position in a portfolio are you going to make this and do you need to tilt towards technology at a time when it represents such a big part of things like the S&P 500 anyway?
Todd Rosenbluth: Well, you’re right. Technology is the largest sector in the S&P 500, roughly 30%. So we think people want to have exposure. They might even want to build their own portfolios using sectors. And then you could take a more equally weighted approach. So have 30% using RSPT, just to have a more diversified way of having exposure, or if you want to overweight that and increase that from 30% to something higher, you could use RSPT and pair that with an S&P 500 based ETF to risk control a bit.
So you’d still have that concentration in those mega-cap technology stocks in your core. But if you think technology is going to continue to lead the market higher and you want more exposure, this is a more risk-controlled approach of having exposure to the technology sector.
Chuck Jaffe: This is above its 200-day moving average. Not a surprise there, but is it a 200-day moving average play? Like if you’re getting into this now, would your trigger be out of this? Maybe when we see the market take a little bit of a tumble, if it falls below 200 day moving average, there’s your sign.
Todd Rosenbluth: It very much may be that; I’m not a technician. I know many people focus on the relative strength in the 200-day moving average and use that as a timing mechanism. I’m more of a fundamental guy and we’ve got earnings season upon us. We’ve already seen strong results from technology companies. There are more coming that are going to report and we think it’s going to be broadly based.
It isn’t just going to be Apple and Microsoft and Nvidia leading the charge, but other companies are likely to have success benefiting from those same trends. And so if you believe that to be the case, you want a more deeply weighted version of the technology sector as opposed to the concentrated, mega-cap-driven one that many people have exposure to.
Chuck Jaffe: You know, one of the discussions I’ve been having with a lot of experts has been on traditional cap weighting, like the S&P 500 versus equal weighting like we’re talking about with this fund or with just the RSPT, which is the whole S&P 500 equal weighted because we’ve had a year where so much was skewed into those top seven companies, eight stocks that have made up the Magnificent Seven.
I’ve been questioning whether or not the cap-weighted index really reflects the market. Right? It’s so much in those few names. How do you feel about that? I mean, are we going to get to a spot where people are ever going to say equal weighting is the superior way to use an index to say this is what the market is doing?
Todd Rosenbluth: So I think the way people should be considering investing is having an equal-weighted approach to it, to let all of their winners have a chance to succeed as opposed to just a handful of companies. And we’ve seen historically that an equally weighted approach has outperformed a market cap weighted approach over time. It isn’t going to do so year after year.
2023 was one of those years where a market cap-weighted approach was the better way of investing. We’ll see if that holds true in 2024. But yes, I still think people are going to think of the market as the S&P 500 on a market cap-weighted approach. And if you don’t want to be like everybody else, you want to take a different stance.
There’s success in equal weighting history.
Chuck Jaffe: And that’s why we’re looking at equal weighting this week with the RSPT, the Invesco S&P 500 Equal Weight Technology ETF, the ETF of the Week from Todd Rosenbluth at VettaFi. Todd, great stuff as always thanks for joining me.
Todd Rosenbluth: Thanks for talking. I’ll see you next week.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi.com and Money Life with Chuck Jaffe. Yes, that’s me. You can read all about my hourlong weekday podcast by going to MoneyLifeShow.com or by looking wherever you find good podcasts. If you want to learn more about exchange-traded funds, make sure you check out VettaFi.com for their full suite of tools.
They’re on Twitter @Vetta_Fi. Todd Rosenbluth, their head of research my guest well, he’s on Twitter too. He’s @ToddRosenbluth. The ETF of the Week podcast is here for you every Thursday. Make sure you don’t miss any by subscribing to your favorite podcast app. And until we do this again next week, happy investing, everybody.
For more news, information, and analysis, visit VettaFi | ETFDB.