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This Equal-Weighted S&P 500 ETF Could Outperform the Market in 2024

Baystreet.ca
·1 min read

Want a more balanced option to investing in the S&P 500? Consider the Invesco S&P 500 Equal Weight ETF (NYSE: RSP). It presents investors with a unique twist on the conventional approach to tracking the S&P 500. Unlike traditional funds that track the S&P 500 based on market capitalization, where larger companies command a more significant portion of the index, RSP assigns an equal weight to each company in the index. This structure provides a more balanced exposure across all sectors and companies, regardless of their size.

By equalizing the weight of each constituent, the fund avoids the heavy concentration in tech giants and other behemoths that dominate market cap-weighted indexes. This means that RSP can potentially offer better exposure to sectors and companies that are often underrepresented in traditional S&P 500 funds. It diversifies risk more evenly across its holdings, potentially providing a smoother investment ride. In market cap-weighted funds, a few large stocks can have an outsized impact on performance. RSP's methodology mitigates this risk, offering a more stable and diversified portfolio.

The fund's strategy of equal weighting requires more frequent rebalancing, which can incur additional costs. However, at 0.2%, the ETF’s expense ratio remains fairly low.

Read:

Year to date, shares Invesco’s equal-weighted ETF are up just 6.6%, which is far less than the 20% returns of the S&P 500. But with less reliance on potentially overpriced tech stocks, the equal-weighted fund may be in a better position to outperform in 2024. If you want a more diversified option than the typical S&P 500 fund, this could be an investment worth considering.