When it comes to energy, ETF investors can find a smart equal weight strategy in the Invesco S&P 500 Equal Weight Energy ETF (RYE).
RYE seeks to track the investment results (before fees and expenses) of the S&P 500® Equal Weight Energy Index. The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index.
The underlying index is composed of all of the components of the S&P 500® Energy Index, an index that contains the common stocks of all companies included in the S&P 500® Index that are classified as members of the energy sector, as defined according to the Global Industry Classification Standard (GICS).
This ETF offers a unique way to access the U.S. energy market, giving investors seeking to avoid cap-weighted products as an alternative way to bet on oil stocks. RYE is likely too targeted for those investors with a long term focus, but can be useful as a way to tilt portfolio exposure towards a specific sector or as part of a long/short pairs trade.
Like many Rydex ETFs, RYE is equal-weighted, meaning that exposure is spread evenly across portfolio components. This methodology may be particularly appealing in the top-heavy energy industry, where traditional cap-weighting can result in significant concentration issues.
RYE’s expense ratio comes in at 0.40%.
RYE Outperforming the S&P 500 Energy Sector
RYE is up almost 57% within the last three months, highlighting recent strength in the energy sector. The fund is already outperforming the S&P 500 Energy Sector by about 15% within that same time frame.
Popping the hood of the ETF, we can see key holdings like Diamondback Energy, Inc powering its performance. Its garnering some strong bullish interest in the early going of 2021.
“Diamondback Energy, Inc. (FANG) is ready for the economy to re-open after COVID. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by 59% in 2021,” a Yahoo! Finance article noted. “Diamondback is an independent oil and natural gas company headquartered in Midland, Texas. It explores for oil, onshore, and natural gas in the Permian Basin in West Texas.”
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