Equal-Weight ETF Still Beating the S&P 500 a Decade Later

ETF Trends

Guggenheim S&P 500 Equal Weight (RSP) now boasts a decade-long track record that tops the S&P 500.

RSP is also outperforming its market-cap-weighted ETF rivals this year thanks to the outperformance of smaller stocks, and mid-caps in particular.

Investors are noticing as RSP on Monday saw $250 million worth of trading in what appears to be a buyer, according to ETF liquidity provider WallachBeth Capital.

The ETF invests 0.2% in every stock in the S&P 500, and rebalances on a quarterly basis to maintain the equal weighting.

Market-cap-weighted funds such as SPDR S&P 500 (SPY) weight stocks by their size. For example, Apple (AAPL) and Exxon Mobil (XOM) are the largest two stocks in SPY at nearly 3% each.

RSP has delivered a total return of 24.5% year to date, compared with 20.9% for the S&P 500, according to Morningstar performance data.

“Since inception, Guggenheim S&P 500 Equal Weight has outpaced the market-weighted S&P 500. Equal-weighting’s primary advantage compared with market-cap weighting comes from its greater exposure to higher-risk but higher-return small-cap stocks,” says Morningstar analyst Michael Rawson in a report on RSP.

The equal-weighted ETF was launched in April 2003 and charges an expense ratio of 0.4%.

RSP has a 10-year annualized return of 9.5% versus 7.3% for the S&P 500.

“Investors often focus on individual stocks rather than the behavior of the portfolio in aggregate. While, technically, the fund owns mostly large-cap stocks, by equal-weighting them, the portfolio behaves more like a mid-cap fund, with a greater beta and volatility than a large-cap fund. Thus, this fund should really be compared with a mid-cap fund and that exposure can be obtained more cheaply,” Rawson said.

“In addition, there may be a slight improvement in return resulting from the strategy’s need to periodically rebalance by selling recent winners and buying recent losers, which results in a forced buy low/sell high approach,” he added.

Guggenheim S&P 500 Equal Weight

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Full disclosure: Tom Lydon’s clients own SPY and RSP.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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