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Beat the S&P 500 with the Equal-Weight ETF

Neena Mishra
  • (1:00) - Equal Weighted vs. Market Cap Weighted ETFs
  • (4:45) - Invesco S&P 500 Equal Weight ETF Overview 
  • (11:40) - Does Equal Weighting Work Best With Large Cap Stocks?
  • (16:00) - Invesco’s Suite of Equal Weighted Sector ETFs: EWCO & RYT
  • (22:30) - How Can Investors Use These ETF Strategies? 
  • (27:40) - Episode Roundup: Podcast@Zacks.com

In this episode of ETF Spotlight, I talk with Nick Kalivas, Senior Equity Product Strategist at Invesco, about equal weighted ETFs.

Market cap weighted ETFs are very popular with investors as they provide low cost, convenient ways to mimic the entire market or a particular segment of the market. However these ETFs are usually over-exposed to the largest and most expensive stocks.  Nick explains the advantages and disadvantages of equal weighting versus market cap weighting.

The Invesco S&P 500 Equal Weight ETF RSP is the most popular equal-weight ETF. Equal weighting of its constituents results in sector exposures that differ significantly from the market cap weighted index. What do investors need to know?

Since its inception in April 2003, RSP has beaten the S&P 500 index by over 70% on a cumulative basis, thanks mainly to its greater focus on value and small size.

Apple AAPL, Microsoft MSFT and Amazon.com AMZN together account for almost 11% of the S&P 500 but get only about 0.6% representation in RSP.

Due to its underweighting to technology, the product lagged behind during periods of strong performance by tech heavyweights. Should investors expect it to perform like mid-cap ETFs with a value tilt? Should they expect it to outperform over longer holding periods?

We also discuss if equal weighting makes more sense for large cap ETFs since mid and small cap ETFs do not have a lot of single stock risk.

In November last year, Invesco launched S&P 500 Equal Weight Communication Services ETF EWCO. This is an interesting choice for investors looking for exposure to the new sector that was created after GICS realignment. The market cap weighted index for this new sector has almost 43% allocation to just two massive companies—Facebook FB and Google’s Alphabet GOOGL.

Invesco has an interesting suite of alternatively weighted ETFs. Is there any particular form of weighting that investors should consider in the current market environment?

Finally, we discuss how investors should use equal weighted and other alternatively weighted ETFs in their portfolios.

Please visit invesco.com to learn more about these ETFs and other Invesco products.  Make sure to tune in for our next podcast and also subscribe. If you have any comments or questions, please email podcast@zacks.com

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Facebook, Inc. (FB) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
Invesco S&P 500 Equal Weight ETF (RSP): ETF Research Reports
Invesco S&P 500 Equal Weight Communication Services ETF (EWCO): ETF Research Reports
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