Many investors use the Invesco S&P 500 Equal Weight ETF (RSP) as the core equity holding in their portfolios. However, the methodology introduces several factor tilts to a portfolio.
RSP is based on the S&P 500 Equal Weight Index, which comprises all the constituents in the S&P 500 that are equally weighted at each quarterly rebalance.
As of September 30, the S&P 500 Equal Weight has a tilt towards small size (47.8%), value (33.4%), and dividend (15.6%) compared to the S&P 500. It also has a tilt away from quality (-23.7%), low volatility (-6.0%), high beta (-4.5%), and momentum (-3.1%), according to S&P Dow Jones Indices.
The portfolio overlap, as measured by the percentage of index weights held in common, between the S&P 500 and equal weighting is 52% as of September 30, according to S&P Dow Jones Indices.
The index’s factor tilts have helped it outperform the benchmark this year, particularly in the first half when the biggest companies experienced the most significant selloffs.
The index outperformed the S&P 500 by 2% in the first and second quarters. The S&P 500 EWI slightly outperformed the S&P 500 during the third quarter, continuing equal weight’s trailing 12-month relative outperformance.
While the methodology has outperformed over a one-year period, beating the S&P 500 by 1.9% as of September 30, the results are mixed over a longer period of time. Over a three-year, five-year, and 10-year period, equal weight is trailing by an annualized 0.5%, 1.2%, and 0.2%, respectively, as of September 30. Over a 15-year period, equal weight is outperforming the S&P 500 by an annualized 0.6%, according to S&P Dow Jones Indices.
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