The Invesco S&P 500 Equal Weight Energy ETF (RYE) is a great fit for investors looking to add energy exposure to their portfolios to hedge against inflation and rising rates.
This ETF offers a unique way to access the U.S. energy market, giving investors seeking to avoid market cap-weighted products an alternative way to bet on oil stocks, according to ETF Database.
RYE tracks an index that equally weights stocks in the energy sector of the S&P 500 Index. RYE is highly concentrated, with 24 equally weighted holdings and the top 10 holdings amounting to 48.82% of the fund.
Energy was the top performing sector of the S&P 500 during 2021. RYE has returned 23.24% over a one-month period and 83.22% over a one-year period.
Allocators continue to flock to the strategy as inflation and anticipated rising interest rates dominate investors’ concerns. The fund has seen $76 million since the beginning of the year, according to ETF Database.
The rotation toward energy in times of rising inflation is a time-tested strategy. The energy sector is less sensitive to inflation and rising interest rates than other income sectors. Energy stocks beat inflation 71% of the time within a time span of 1973–2020 and delivered an annual real return of 9.0% per year on average, according to Zacks.
Equities that pay dividends are typically better-positioned in an inflationary environment than the broader equity market or fixed income investments; the energy sector ranks first in average dividend yield, according to ETF Database.
RYE carries an expense ratio of 40 basis points and has an annual dividend yield of 1.93%, according to ETF Database.
While energy sometimes has a bad reputation for not being climate-friendly, RYE was awarded an ESG score of 8.28 out of a maximum of 10, according to ETF Database.
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