An equal-weighting methodology offers many benefits to investors, including enhanced diversification, inherent tilt toward value, and historical outperformance.
The Invesco S&P 500 Equal Weight ETF (RSP) has continued to increase in popularity as equal weighting gains momentum with advisors. RSP has taken in more inflows than any other fund in Invesco’s ETF range, seeing $3.3 billion in year-to-date net inflows and $11.6 billion in three-year flows, according to VettaFi.
RSP is based on the S&P 500 Equal Weight Index and Invesco ESG S&P 500 Equal Weight ETF (RSPE) is based on the S&P 500 Equal Weight ESG Leaders Select Index. RSPE’s underlying index is designed to measure the equal-weighted performance of securities included in the S&P 500 Equal Weight Index that also meet ESG criteria, while maintaining similar overall industry group weights as the S&P 500 Equal Weight Index, according to the firm.
RSP and RSPE can reduce concentration risk in a portfolio by weighting each constituent company equally so that a small group of companies does not have an outsized impact on the fund.
Historically, equal-weight indexes have often outperformed their market cap-weighted counterparts, as demonstrated by the S&P 500 Equal Weight Index in August, maintaining equal weight’s trailing 12-month relative outperformance.
The S&P 500 EWI declined 3.7% in August, outperforming the S&P 500 by 0.6%. Key performance contributors for Equal Weight last month were those underweight to communication services and the overweight to energy and utilities, according to commentary from S&P Dow Jones Indices.
This momentum is continuing from a strong first half of the year, in which the S&P 500 EWI outperformed the S&P 500 by 2% during both the first and second quarters, according to the S&P Dow Jones Indices U.S. Equal Weight Sector Dashboard.
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