An equal-weighting methodology offers many benefits to investors, including enhanced diversification, inherent tilt toward value, and historical outperformance.
The Invesco S&P 500 Equal Weight ETF (RSP ) has continued to increase in popularity as equal weighting gains momentum with advisors. RSP has taken in more inflows than any other fund in Invesco’s ETF range, seeing $3.3 billion in year-to-date net inflows and $11.6 billion in three-year flows, according to VettaFi.
RSP is based on the S&P 500 Equal Weight Index and Invesco ESG S&P 500 Equal Weight ETF (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 the firm.
RSP and RSPE can reduce concentration risk in a portfolio by weighting each constituent company equally so that a small group of companies does not have an outsized impact on the fund.
Historically, equal-weight indexes have often outperformed their market cap-weighted counterparts, as demonstrated by the S&P 500 Equal Weight Index in August, maintaining equal weight’s trailing 12-month relative outperformance.
The S&P 500 EWI declined 3.7% in August, outperforming the S&P 500 by 0.6%. Key performance contributors for Equal Weight last month were those underweight to communication services and the overweight to energy and utilities, according to commentary from S&P Dow Jones Indices.
This momentum is continuing from a strong first half of the year, in which the S&P 500 EWI outperformed the S&P 500 by 2% during both the first and second quarters, according to the S&P Dow Jones Indices U.S. Equal Weight Sector Dashboard
For more news, information, and strategy, visit our Portfolio Strategies Channel.
