ETF of the Week: Invesco S&P 500® Equal Weight ETF

RSP returns for its second appearance as ETF of the Week, though to a different world for equal-weight strategies. Equal weighting seemed like a “novel concept” when it last appeared on the pod, Jaffe noted, pointing out that RSP represents an interesting follow-up to last week’s 30th birthday party for the SPDR S&P 500 ETF Trust (SPY A-).

According to Lydon, SPY has been tough to beat thanks to the FAANG stocks and their heavy weightings in the S&P 500 over the last 10 years — but RSP has emerged as a real challenger with recent pressure on the FAANG stocks and growth rates dropping a bit.

“What’s interesting is RSP, which is the equal-weight S&P 500, rather than having cap-weighted constituents, giving every constituent the same weighting has actually since its inception almost 20 years ago has outperformed the S&P 500 index by about 1%,” Lydon said.

At the same time, diversification is key, Lydon shared, pointing out that at one point the S&P 500 had eight stocks that made up 35% of overall weighting and performance — a scary sight to see that may have felt fine going up but doesn’t feel quite as good going down.

Asked by Jaffe for his opinion on RSP given technical analysis suggesting a recent upswing trend for the S&P 500, Lydon emphasized that investors have the benefit of choice and can diversify between the two.

“I would just say to the average investor and the average advisor out there, hedge your bets,” Lydon said regarding a possible new uptrend. “Don’t wait until you feel really good in your stomach, because that point in time, it’s already rebounded.”

“And as you’re allocating, think about diversifying your allocation. If you like large-cap growth, here’s an opportunity to spread it out among different stocks equally as opposed to heavier concentration, just a handful of stocks,” he added.

RSP crossed its 200-Day Simple Moving Average at the beginning of the month, while SPY did last week. With some of the smaller up-and-coming firms and future FAANG stocks included in the S&P 500, Lydon concluded, why not give them an equal look in RSP?

The ETF from Invesco charges just 20 basis points to track its equal-weighted index of the S&P 500. RSP has outperformed its ETF Database category average and its FactSet segment average over the last month, returning 8.5% compared to 6.5% and 5.3%, respectively, on top of $1.2 billion in net inflows over the last month.

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