Energy and Materials Rally; Check Out Equal-Weight RYE and RTM

The energy and materials sectors led yesterday’s rally, as both U.S. and international stocks edged higher.

As investors welcomed the coordinated liquidity provision by central banks yesterday, all U.S. large-cap segments gained, with the S&P 500 climbing 0.9% on Monday. The rally was led by energy, up 2.1%, and materials, up 2.0%, on the day.

The climb has continued into Tuesday, as the energy sector is up 2.7% while materials are up 1.0% in midday trading.

Investors looking to overweight the energy or materials sectors might want to consider a smart beta strategy such as the Invesco S&P 500 Equal Weight Energy ETF (RYE) or the Invesco S&P 500 Equal Weight Materials ETF (RTM).

“Investors are willing to take on more exposure to economically sensitive energy and materials sectors amid signs the worst of the bank crisis might be in the past. Equally weighted sector approaches limit the concentration risk,” Todd Rosenbluth, head of research at VettaFi, said.

An equal-weight strategy can 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.

RYE and RTM differ from other sector ETFs because component companies receive approximately equal allocations at each quarterly rebalance. The equal-weight methodology results in exposure that is considerably more balanced than other alternatives, and introduces a slight value tilt to portfolios.

RYE provides exposure to companies in the S&P 500 energy sector, which includes oil, gas, consumable fuel, energy equipment, and services industries.

RTM offers exposure to equities included in the S&P 500 materials sector, which covers the following industries: chemicals, construction materials, containers and packaging, metals and mining, and paper and forest products.

RYE and RTM each charge a 40 basis point expense ratio.

For more news, information, and analysis, visit the Portfolio Strategies Channel.