U.S. inflation has remained stubbornly high, increasing 0.4% in September on a monthly basis after a 0.1% increase in August. Investors looking to maintain broad exposure to the U.S. market may want to consider the Invesco S&P 500 Equal Weight ETF (RSP), which weights each of the 500 holdings equally at around 0.20%.
Year over year, prices climbed by 8.2% in September compared to 2021. Increases in the shelter, food, and medical care indexes were the largest of many contributors to the monthly seasonally adjusted all items increase, according to the report from the U.S. Bureau of Labor Statistics.
The food index continued to rise, increasing 0.8% over the month as the food at home index rose 0.7%. The energy index fell 2.1% over the month as the gasoline index declined by 4.9%, but the natural gas and electricity indexes increased.
Equal-weight indexes have historically outperformed their market-cap weighted peers due to the factor tilts toward value and small size. Nick Kalivas, head of factor and core equity product strategy for Invesco, said in April that size and value have historically enjoyed periods of reflation in the economy.
With quarterly rebalances to maintain equal weightings, RSP’s methodology imposes a strict “buy low/sell high” discipline, trimming allocations to companies that have grown and increasing allocations to companies that have underperformed, according to Invesco.
The S&P 500 EWI slightly outperformed the S&P 500 during the third quarter, continuing equal weight’s trailing 12-month relative outperformance. Key performance contributors for equal weight were the underweight to communication services and the overweight to utilities, according to S&P Dow Jones Indices.
Equal weight also outperformed the S&P 500 by 2% in both the first and second quarters.
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