With heavy volatility going on in the energy sector, an equal-weight strategy can be ideal to help minimize the market movements with an exchange traded fund (ETF) such as the Invesco S&P 500 Equal Weight Energy ETF (RYE).
An equal-weight strategy can help minimize concentration risk so investors are not too heavy with one or a few stocks in a portfolio. The energy sector in particular can experience strong momentous moves, but right now, things are headed in the right direction.
Energy equities have been one of the best-performing sectors amid a volatile 2022. Moreover, market analysts suspect that they have more room to run to the upside, especially if oil prices continue their upward momentum.
No Sacrificing Performance
RYE seeks to track the investment results (before fees and expenses) of the S&P 500® Equal Weight Energy Index. The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index.
The underlying index is composed of all of the components of the S&P 500® Energy Index, an index that contains the common stocks of all companies included in the S&P 500® Index that are classified as members of the energy sector, as defined by the Global Industry Classification Standard (GICS).
“This ETF offers a unique way to access the U.S. energy market, giving investors seeking to avoid cap-weighted products as an alternative way to bet on oil stocks,” an ETF Database analysis says. “RYE is likely too targeted for those investors with a long term focus, but can be useful as a way to tilt portfolio exposure towards a specific sector or as part of a long/short pairs trade.”
Investors wondering whether they’ll lose any performance by going to an equal-weight strategy can put that thought to rest. RYE has been in lockstep with, and actually is just a bit ahead of, the S&P 500 Energy index.
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