The Case for Equal Weight Energy Exposure With RYE | ETF Trends

The Invesco S&P 500® Equal Weight Energy ETF (RYE) offers a unique way to access the U.S. energy market, giving investors seeking to avoid cap-weighted products an alternative way to bet on oil stocks. 

Energy was the top-performing sector of the S&P 500 last year, and the trend has intensified this year so far. As of the end of February, the S&P 500 Index was down -8.01% while the S&P 500 Equal Weight Energy Index was up a whopping 28.13%, according to Invesco. 

RYE has returned 32.25% year-to-date, putting it in the top 10 top-performers so far in 2022, according to ETF Database. This fund can be useful as a way to tilt portfolio exposure towards the energy sector or as part of a long/short pairs trade.

RYE is equal-weighted, meaning that exposure is spread evenly across portfolio components. This methodology may be particularly appealing in the top-heavy energy industry, where traditional cap-weighting can result in significant concentration issues, according to ETF Database.

The fund has 25 holdings, each equally weighted around 4%. This strategy prefers smaller market-cap companies compared with the average fund in its peer group, according to Morningstar.

Looking at additional factor exposure, this strategy tilts toward highly liquid stocks, demonstrated by holding companies with relatively higher trading volumes. This gives the managers flexibility during bear markets to sell without adversely affecting prices, according to Morningstar.

RYE charges 40 basis points, and while this ETF may be more expensive than some competitors from a cost perspective, it offers an opportunity to achieve more balanced exposure to the energy sector that avoids the potential performance drags of cap-weighted ETFs, according to ETF Database.

Incepted in 2006, the fund has $538 million in assets under management.

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