Many advisors are looking to the benefits of an equal weight strategy and using the Invesco S&P 500 Equal Weight ETF (RSP) as the core equity holding in portfolios.
RSP is an ideal fit for investors looking to maintain broad exposure to the U.S. market since the fund tracks the S&P 500 Equal Weight Index, which, as the name suggests, weights each of the S&P 500’s constituents equally, around 0.20%.
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.
The diversification benefits are a primary reason why many investors favor equal-weighting over market cap-weighted strategies. RSP reduces a portfolio’s concentration, ensuring that a small group of companies does not have an outsized impact on the index.
History has demonstrated that equal weight also tends to outperform. The S&P 500 EWI slightly outperformed the S&P 500 during all three quarters of 2022. Year-to-date through November 15, the S&P 500 has declined by 16.8% while RSP has declined by 10.9%, according to YCharts. As of the end of October, equal weight has outperformed the S&P 500 by 5% over a trailing 12 month period.
RSP has seen $5 billion in year-to-date inflows, making it Invesco’s second most popular ETF this year, as measured by YTD flows, trailing only the Invesco QQQ Trust (QQQ), which has taken in $5.8 billion in inflows.
The Invesco ESG S&P 500 Equal Weight ETF (RSPE) offers the same equal weight methodology but screens for ESG criteria. RSPE has 187 holdings compared to RSP’s inclusion of all constituents in the S&P 500. At each rebalance, the securities in RSPE are each weighted at around 0.6% whereas each security is weighted at around 0.2% in RSP.
Holdings in RSP that have been screened out of RSPE include FedEx Corp (FDX), Duke Realty Corp (DRE), Boeing Co (BA), Incyte Corp (INCY), Eli Lilly & Co (LLY), Monster Beverage Corporation (MNST), Laboratory Corp of America Holdings (LH), Zoetis Inc (ZTS), Arthur J Gallagher & Co (AJG), and FactSet Research Systems Inc (FDS), among others.
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