As investors allocate to equal-weight strategies, the is lesser-known, has a compelling strategy, and incorporates ESG criteria.
There are many reasons why investors favor equal weighting over market cap-weighted strategies, including enhanced diversification and historical outperformance. In 2022, The S&P 500 Equal Weight Index declined -11.4% compared to the S&P 500’s decline of -18.1%, outperforming in eight of 12 months during the year.
An equal-weight strategy, such as the )+ or RSPE, reduces concentration risk by weighting each constituent equally so that a small group of companies does not have an outsized impact on the index.
RSP is based on the S&P 500 Equal Weight Index, and RSPE is based on the S&P 500 Equal Weight ESG Leaders Select Index. RSPE’s underlying index is designed to measure the equal-weighted performance of securities included in the S&P 500 Equal Weight Index that also meet ESG criteria, while maintaining similar overall industry group weights as the S&P 500 Equal Weight Index, according to Invesco.
RSPE is more concentrated because it excludes ESG offenders, holding 183 securities as of January 10. Due to the difference in the number of holdings and equal-weight methodology, the securities in RSPE are each weighted around 0.6%, whereas each security is weighted around 0.2% in RSP.
All 183 of RSPE’s holdings can be found in RSP, with the portfolios’ overlap being 36.5%
Securities that can be found in RSP but have been screened out of RSPE as of January 10 include Halliburton Co (HAL), Schlumberger Ltd (SLB), APA Corp (APA), Align Technology Inc (ALGN), Valero Energy Corp (VLO), Universal Health Services-B (UHS), Hess Corp (HES), Marathon Petroleum (MPC), Baker Hughes Company Class A (BKR), and Generac Holdings Inc (GNRC), according to ETF Research Center.
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