The S&P 500 Equal Weight Index has maintained a significant lead over the cap weighted S&P 500 all year.
Year-to-date through November 29, the S&P 500 has declined by 17.04% while the Invesco S&P 500 Equal Weight ETF (RSP), which tracks the S&P 500 EWI, has declined by 10.89%, each on a price change basis, according to YCharts.
Over a one-month period, RSP has increased 3.45% compared to the S&P 500’s gain of 1.28%, according to YCharts.
The portfolio overlap between the two indexes, as measured by the percentage of index weights held in common, is 52% as of October 31, according to S&P Dow Jones Indices.
Equal weight’s factor tilts towards small size and value have helped it outperform the benchmark this year. As of September 30, the S&P 500 Equal Weight has a tilt towards small size (47.8%), value (33.4%), and dividend (15.6%) compared to the S&P 500. It also has a tilt away from quality (-23.7%), low volatility (-6.0%), high beta (-4.5%), and momentum (-3.1%), according to S&P Dow Jones Indices.
The underweighting of mega-cap growth companies has been a key contributor to equal weight’s outperformance in the past year. Equal weight has outperformed the S&P 500 by 5% over a 12-month period as of the end of October. The S&P 500 EWI slightly outperformed the S&P 500 during the third quarter of 2022, while equal weight outperformed the S&P 500 by 2% in both the first and second quarters of 2022.
The Invesco ESG S&P 500 Equal Weight ETF (RSPE) offers the same equal weight methodology but filters out ESG offenders. RSPE has 187 holdings compared to RSP’s inclusion of all constituents in the S&P 500. At each rebalance, the securities in RSPE are each weighted at around 0.6% whereas each security is weighted at around 0.2% in RSP.
Holdings in RSP that have been screened out of RSPE include FedEx Corp (FDX), Duke Realty Corp (DRE), Boeing Co (BA), Incyte Corp (INCY), Eli Lilly & Co (LLY), Monster Beverage Corporation (MNST), Laboratory Corp of America Holdings (LH), Zoetis Inc (ZTS), Arthur J Gallagher & Co (AJG), and FactSet Research Systems Inc (FDS), among others.
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