The equal-weight strategy used by the Invesco S&P 500® Equal Weight ETF (RSP) has helped give the fund the second-highest inflows among Invesco ETFs so far this year.
Equal-weight funds can help mitigate concentration risk while providing investors with a variety of market cap exposures.
RSP seeks to track the investment results (before fees and expenses) of the S&P 500® Equal Weight Index. The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index.
Strictly in accordance with its guidelines and mandated procedures, the index provider compiles, maintains, and calculates the underlying index, which is an equal-weighted version of the S&P 500® Index. RSP employs a varied mix of primarily large- and mid-cap equities.
“Equal weighting is dead simple, but the portfolio you apply it to deserves close attention,” an Investing.com article explained. “Imagine a portfolio with ten assets. Equal weighting is easy: put 10% in each security and periodically rebalance to that weighting scheme.”
“The trouble begins if the ten assets are biased,” the article added. “To use an extreme example: If nine of the ten assets are bonds and the tenth asset a stock, equal weighting would forever dispense a heavily weighted bond portfolio. Not exactly an unbiased portfolio.”
This is where RSP shines in terms of its sector allocation. As opposed to being heavy in tech or financials, RSP gives investors a variety of exposure to various sectors.
A Focused Equal-Weight Fund
For ETF investors who want more focused exposure to the largest 100 companies, there’s the Invesco S&P 100 Equal Weight ETF (EQWL). The fund seeks to track the investment results of the S&P 100® Equal Weight Index.
It will generally will invest at least 90% of its total assets in the securities that comprise the underlying index. Strictly in accordance with its guidelines and mandated procedures, the index provider compiles, maintains and calculates the underlying index, which is an equal-weighted version of the S&P 100® Index.
“The Invesco S&P 100 Equal Weight ETF is a variation on Invesco’s popular equal-weight S&P 500 ETF, taking the 100 largest companies in the S&P 500 and assigning them equal weight in the portfolio,” an ETF Database analysis said. “The result is a portfolio with a significantly different industry and sector mix than a traditional market-cap weighted ETF.”
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