The S&P 500 was pushed into correction territory on Tuesday, creating buying opportunities into high-value stocks.
While the dip can be detrimental to short-term investors and traders, long-term investors are able to capitalize on the price drop to add exposure to sought-after ETFs that have historically had hefty share prices.
A fund to consider that is well-positioned in the current environment, which is distressed by inflation and geopolitical tensions, is the Invesco S&P 500 Equal Weight ETF (RSP).
Equal-weighted ETFs such as RSP, which is the largest fund in its category, minimize single stock risk. That’s a potential selling point for investors at a time when growth and technology stocks have been weighing on the broader market.
As the S&P 500 has grown ever more top-heavy, many investors in products tied to the index in a market cap-weighted fund have found themselves facing historic levels of concentration risk, according to Invesco.
Market capitalization-weighted ETFs can often result in just a few companies having an outsized influence on index performance. When looking at the S&P 500, investors have up to 35 times the exposure to the top holdings in a market cap strategy than they would in an equal-weighted approach.
Opting for an equal-weight index, as opposed to a market cap-weighted approach, 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.
With quarterly rebalances to maintain equal weightings, RSP’s methodology imposes a strict “buy low/sell high” discipline, trimming allocations to companies that have grown and increasing allocations to companies that have underperformed, according to Invesco.
Another equal-weighted ETF to consider is the Invesco ESG S&P 500 Equal Weight ETF (RSPE), which integrates ESG considerations into the investment strategy.
For more news, information, and strategy, visit the Portfolio Strategies Channel.