Tapping into the Best-Known Equal-Weight ETF

This article is the first in a series exploring equal-weight ETFs.

After the market downturn last week, in which the S&P 500 fell 1.7% and the Dow lost 600 points, some investors are turning to equal-weight exchange-traded funds (ETFs) to cushion their portfolios against another downturn.

When an ETF’s portfolio is equally weighted, all companies or sectors in it are equally favored, regardless of market capitalization or size. This contrasts with a market-cap-weighted ETF, in which a specific sector or company can attain a disproportionate weight in the portfolio.

Thus, when setting a market-cap-weighted ETF and an equal-weight ETF with the same stocks in each portfolio side-by-side, we can see that those funds fill their holdings differently. One of the most famous equal-weight ETFs is one that my Successful Investing and Intelligence Report readers will find familiar, as it has been a mainstay in our Growth and Tactical Trends Portfolios since November 2020: the Invesco S&P 500 Equal Weight ETF (NYSEARCA: RSP).

Not surprisingly given the ETF’s name, RSP takes all the stocks in the S&P 500 and weights them equally. As a result, many small-cap and mid-cap stocks that would be overshadowed in a market-cap-weighted portfolio get their chance to shine more brightly in an equal-weighted ETF. At the same time, since the portfolio does not favor a specific sector, the ETF is relatively well-cushioned from sector downturns.

Some of the fund’s holdings include Centene Corporation (NYSE: CNC), American Airlines Group, Inc. (NASDAQ: AAL), Incyte Corporation (NASDAQ: INCY), EOG Resources, Inc. (NYSE: EOG), Lumen Technologies, Inc. (NYSE: LUMN), Cabot Oil & Gas Corporation (NYSE: COG), Expedia Group, Inc. (NASDAQ: EXPE) and Diamondback Energy, Inc. (NASDAQ: FANG).

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This fund’s performance has been relatively strong, even when including the damage done by the COVID-19 pandemic. As of Sept. 21, RSP has been down 2.07% over the past month and up 0.77% for the past three months. It currently is up 18.64% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $29.19 billion in assets under management and has an expense ratio of 0.20%. While RSP does provide an investor with a way to profit from an equally balanced portfolio, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.