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.