U.S. equities declined in the third quarter as the Federal Reserve continued aggressive interest rate hikes, aiming to combat inflation that has remained near multi-decade highs, further complicated by escalating geopolitical tensions.
U.S. equities staged a recovery rally in July, with the S&P 500 notching its best month since November 2020. The S&P 500 posted a gain of 9.2%, while the S&P 500 Equal Weight index increased 8.7%, according to S&P Dow Jones Indices. The indexes closed the quarter on a different note, with the S&P 500 in September posting its worst month since March 2020, declining 9.2%.
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 during the first half of the year, in which the S&P 500 EWI outperformed the S&P 500 by 2% in each quarter.
Five out of 11 equal-weight sectors outperformed their cap-weighted counterparts during the third quarter. The sectors in which the EWI outperformed were industrials, technology, utilities, real estate, and communication services.
Over the past 12 months, the energy sector was the leader in both equal- and cap-weighted. Energy was the sole equal-weight sector with positive performance during the third quarter; the cap-weight index saw positive performance for both the energy and consumer discretionary sectors.
Investors can gain exposure to the S&P 500 EWI with the Invesco S&P 500® Equal Weight ETF (RSP) or the Invesco ESG S&P 500 Equal Weight ETF (RSPE), which screens for ESG criteria. Equal-weighted strategies can provide diversification benefits and reduce concentration risk by weighting each constituent company equally so that a small group of companies does not have an outsized impact on the index.
The funds have also historically demonstrated strong returns and a tilt toward smaller, value companies, making both offerings uniquely attractive in the current environment.
For more news, information, and strategy, visit the Portfolio Strategies Channel.