After equal weight’s significant outperformance this year, many advisors are looking to the as the core equity holding in client portfolios.
RSP is a compelling offering for investors looking to enhance a portfolio’s broad exposure to the U.S. market. The diversification benefits are a primary reason why many investors favor equal-weighting over market cap-weighted strategies. RSP reduces a portfolio’s concentration, ensuring that a small group of companies does not have an outsized impact on the index.
The fund tracks the S&P 500 Equal Weight Index, which, as the name suggests, weights each of the S&P 500’s constituents equally, around 0.20%.
RSP’s methodology imposes a strict “buy low/sell high” discipline, trimming allocations to companies that have grown and increasing allocations to companies that have underperformed at each quarterly rebalance.
History has demonstrated that equal weight tends to outperform. The S&P 500 Equal Weight Index has outperformed the S&P 500 by over 8% on a relative basis over a 12-month period, as of the end of November. Year-to-date through the end of November, equal weight has declined -7.1% compared to the S&P 500’s decline of -13.1%.
The offers the same equal weight methodology but screens for ESG criteria, making it another option as a core equity holding. RSPE has 187 holdings, compared to RSP’s inclusion of all constituents in the S&P 500. At each rebalance, the securities in RSPE are each weighted at around 0.6% whereas each security is weighted at around 0.2% in RSP.
Holdings in RSP that have been screened out of RSPE include FedEx Corp (FDX), Duke Realty Corp (DRE), Boeing Co (BA), Incyte Corp (INCY), Eli Lilly & Co (LLY), Monster Beverage Corporation (MNST), Laboratory Corp of America Holdings (LH), Zoetis Inc (ZTS), Arthur J Gallagher & Co (AJG), and FactSet Research Systems Inc (FDS), among others.
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