After outperforming in 2022, equal weight is off to a strong start this year.
The Invesco S&P 500 Equal Weight ETF (RSP) handily outperformed the S&P 500 last year, with that momentum continuing into the first weeks of 2023.
RSP has climbed 4.9% year to date as of January 11, while the S&P 500 has increased 3.4% during the same period, each on a total return basis. Over one year, RSP has declined just -7.2% compared to the S&P 500’s -14.4% decline.
RSP tracks the S&P 500 Equal Weight Index, which includes all constituents in the S&P 500 but gives them equal weights at each quarterly rebalance. The portfolio overlap, as measured by the percentage of index weights held in common, between the S&P 500 and equal weighting is 52% as of September 30, according to S&P Dow Jones Indexes.
In 2022, the S&P 500 declined -18.1% in 2022 compared to RSP’s decline of -11.6%, each on a total return basis.
Equal weight’s methodology of selling relative winners and buying relative losers adds factor tilts to a portfolio. As of the end of the third quarter, the S&P 500 Equal Weight Index tilts 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 Indexes.
The Invesco ESG S&P 500 Equal Weight ETF (RSPE) offers the same methodology as RSP but implements a screen for ESG criteria. RSPE is up 4.7% year to date as of January 11 and has declined -8.0% over one year. The fund declined -12.2% in 2022, maintaining a lead over the cap-weighted S&P 500 throughout last year.
RSP and RSPE each charge a 20 basis point expense ratio.
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