The equal-weight methodology isn’t just for broad market indices. Invesco boasts a broad lineup of equal-weight sector exchange traded funds, including the Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS).
While the consumer staples sector is typically viewed as defensive and prized for above-average dividend yields, by not being heavily allocated to just a handful of stocks, RHS offers investors the potential to unlock a refreshed view of the normally stodgy sector.
None of the members of the RHS lineup command more than 3.33% of the exchange traded fund’s roster, according to Invesco data. Conversely, Dow component Procter & Gamble (NYSE: PG) alone accounts for 15.64% of the cap-weighted S&P 500 Consumer Staples Index.
In other words, RHS is a credible idea for investors looking to skirt single-stock risk in the consumer staples sector.
Other RHS Benefits
Although RHS is an equal-weight ETF, it has some overweight opportunities, including Clorox (NYSE: CLX). While shares of Clorox surged as consumers gobbled household cleaners at the height of the coronavirus pandemic, the stock represents just 1.23% of the S&P 500 Consumer Staples Index. RHS has a 3.24% allocation to that stock.
“Even though it faces competition from private-label offerings, around 80% of Clorox’s U.S. sales are from brands that are number one or two in their categories. Clorox continually looks to strengthen its brands, emphasizing innovation and marketing to differentiate its fare,” according to Morningstar.
And simply because RHS is an equal-weight fund, that doesn’t mean some of the more venerable staples names are rendered insignificant. For example, the ETF’s exposure to Coca-Cola (NYSE: KO), the world’s largest soft drink maker, is decent at just over 3%.
“Coke’s brand resonance in the nonalcoholic beverage category has been going strong for over 130 years, and we see structural dynamics that will ensure this persists,” adds Morningstar. “Despite competing in a mature industry, the firm is adequately exposed, either directly or indirectly, to growth vectors such as premium water and energy drinks.”
For those that need a bit more convincing regarding the efficacy of equal-weight sector strategies, RHS is topping the S&P 500 Consumer Staples Index by nearly 300 basis points year-to-date.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.
