In times of heavy volatility, concentration risk could upend a portfolio, just another reason why equal weight strategies like the Invesco S&P 500® Equal Weight ETF (RSP) are crucial to consider.

This is especially the case when it comes to the S&P 500, given its move toward heavier allocation with the likes of big tech. This list might includes names like Google, Amazon, Microsoft, Apple, and Facebook.

“As the S&P 500 has grown ever more top-heavy, many investors in products tied to the Index have found themselves facing historic levels of concentration risk, the likes of which passive investors have not seen since 1970 — half a century ago. Such a high concentration in the S&P 500’s top five holdings potentially leaves investors vulnerable in the event that the companies’ current high valuations fall back to earth,” the Invesco website noted.

RSP’s equal weight approach to the S&P 500 may offer investors a number of potential benefits. By reducing the heavy weightings allocated to the largest companies, RSP seeks to reduce the concentration risk.

“Investors concerned about the growing concentration risk in traditional market cap-weighted indexes may want to consider an equal weight approach,” the website added. “An equal weight approach can provide diversification benefits and reduce concentration risk by weighting each constituent company equally, so that a small group of companies does not have an outsized impact on the index. Invesco S&P 500® Equal Weight ETF (RSP) takes an equal weight approach to the S&P 500, with each of its 500 constituent companies allocated approximately a 0.2% weighting in the portfolio.”

Mixing Larger and Middle-Sized Names

Per the fund description, 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.

As of July 1, the majority of the fund is in a mid cap blend allocation at 25%.

RSP Chart

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