Investors may wonder about the overlap between two funds with the same methodology, where one of the funds incorporates ESG screening.
As investors consider allocating to equal-weight strategies, the Invesco ESG S&P 500 Equal Weight ETF (RSPE) is a lesser-known relative of the Invesco S&P 500 Equal Weight ETF (RSP). While RSPE screens for ESG criteria, both funds utilize the same methodology.
There are many reasons why investors favor equal weighting over market cap-weighted strategies, including enhanced diversification and historical outperformance. In 2022, The S&P 500 Equal Weight Index declined -11.4% compared to the S&P 500’s decline of -18.1%, outperforming in eight of 12 months during the year.
An equal-weight strategy such as RSPE and RSP reduces concentration risk by weighting each constituent equally so that a small group of companies does not have an outsized impact on the index.
RSP is based on the S&P 500 Equal Weight Index, and RSPE is based on the S&P 500 Equal Weight ESG Leaders Select Index. RSPE’s underlying index 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.
RSPE has fewer holdings as it starts with the S&P 500 universe but excludes ESG offenders, holding 180 securities as of March 17, down from 183 in January. Due to the difference in the number of holdings and equal-weight methodology, the securities in RSPE are each weighted around 0.6%, whereas each security is weighted around 0.2% in RSP.
All 180 of RSPE’s holdings can be found in RSP, with the portfolios’ overlap being 30%
Securities that can be found in RSP but have been screened out of RSPE as of January 10 include Align Technology Inc, Meta Platforms Inc, Catalent Inc, General Electric Company, First Solar Inc, West Pharmaceutical Services, Warner Bros Discovery Inc, Wynn Resorts, Monolithic Power Systems Inc, and MarketAxess Holdings, according to ETF Research Center.
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