Advisors looking for an ESG fund to serve as a portfolio’s core equity holding should consider the Invesco ESG S&P 500 Equal Weight ETF (RSPE), which couples a unique weighting methodology with thorough ESG screening.
An equal-weight strategy such as RSPE 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.
The S&P 500 EWI outperformed the S&P 500 by 2% during both the first and second quarters of 2022. Key performance contributors for equal weight were the underweight to communication services and the overweight to utilities, according to S&P Dow Jones Indices.
The S&P 500 EWI underperformed the S&P 500 by 0.5% in July due to equal weight’s underweight to consumer discretionary. However, 11 equal-weight sectors outperformed their cap-weighted counterparts during the month. Despite the S&P 500 EWI underperformance in July, Equal Weight’s trailing 12-month relative outperformance continued.
RSPE is based on the S&P 500 Equal Weight ESG Leaders Select Index, which is designed to measure the equal-weighted performance of securities included in the S&P 500 Equal Weight Index that also meet ESG criteria, while maintaining similar overall industry group weights as the S&P 500 Equal Weight Index, according to the firm.
Each security is given an “ESG score” that seeks to identify companies well-equipped to recognize and respond to emerging sustainability opportunities and challenges in the global market. Industry-specific questionnaires are used to analyze companies’ custom industries derived from Global Industry Classification Standard (“GICSS&P 500”), according to Invesco.
Companies provide up to 1,000 data points in response to the questionnaires which are used to score each company’s performance in relation to each specific ESG subject. If a company chooses not to actively participate in the assessment, it may be assessed based on publicly available information. Companies are ranked from highest to lowest according to their ESG scores, and the top 40% of constituents within each GICS S&P 500 industry group are generally included in the Index.
The fund charges a 20 basis point expense ratio.
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