What an Equal-Weight S&P 500 ETF Brings to the Table
September 25th at 3:40pm by Tom Lydon
Instead of making a bee-line to the SPDR S&P 500 ETF (NYSEArca: SPY) as the default exchange traded fund for S&P 500 index exposure, investors can also consider an outperforming equal-weight approach.
The Guggenheim S&P 500 Equal-Weight ETF (NYSEArca: RSP) has gained an average annualized 9.6% over the past ten years, compared to the 7.4% return for SPY. Year-to-date, RSP is up 24.6% while SPY increased 20.8%.
The equal-weight methodology provides investors with performance potential, diversification and a disciplined rebalancing schedule, Bill Belden, Managing Director and Head of Product Development at Guggenheim Investments, said in a note.
The equal-weight methodology is outperforming its market-cap-weighted ETF rivals this year thanks to the outperformance of smaller stocks, and mid-caps in particular. [Equal-Weight ETF Still Beating the S&P 500 a Decade Later]
“Since inception, Guggenheim S&P 500 Equal Weight has outpaced the market-weighted S&P 500. Equal-weighting’s primary advantage compared with market-cap weighting comes from its greater exposure to higher-risk but higher-return small-cap stocks,” says Morningstar analyst Michael Rawson in a report on RSP.
By equally weighting component holdings, RSP diminishes concentration risk and provides a more balanced exposure across sectors.
Additionally, the Guggenheim ETF rebalances on a quarterly basis to maintain its equal-weight strategy.
The outperformance has helped RSP attract $1.3 billion in new assets so far this year, according to IndexUniverse. In August while U.S. equity ETFs saw $13.6 billion in outflows, the Guggenheim ETF hit a new record for assets under management and sits over the $5 billion AUM level.
For more information on the equal-weight methodology, visit our equal-weight ETFs category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own SPY and RSP.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.