Equal Weight Investing

How many of the Smallest Stocks in the S&P 500 Index does it take to equal the Largest Stock?

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Source: FactSet Research Systems, Inc., as of March 31, 2018.

The equal weight advantage

Equal weight investing is a smart beta strategy that does exactly what its name implies—it simply weights every stock in a portfolio equally, regardless of how small or large it is. Equal weight investing is very different from the traditional cap-weighted method—where each stock is weighted based on its size (or market capitalization). Cap-weighting often favors the largest stocks in the strategy, which results in the performance of few dominating the rest and increasing concentration risk.

Investors who want to invest in a broad market index, but don't want their investment to be dependent on the performance of a few large companies, may find an equal weight strategy to be an attractive choice. It's important to note that while equal weighting reduces single-stock concentration, some indices may still be concentrated in specific market segments.

Equal weight investing is a straightforward methodology that treats every stock in a portfolio equally, regardless of market capitalization. This simple approach creates unbiased exposure to all stocks and can be applied to broad market indices, such as the S&P 500 Index, as well as to sectors.

Source: FactSet Research Systems, Inc., as of March 31, 2018.

Excess return potential

Since inception, the S&P 500 Equal Weight Index has outperformed the cap-weighted S&P 500. Excess return potential is derived from a combination of balanced exposure and a disciplined quarterly rebalance. .

Growth of $10,000 (Jan. 8, 2003 - March 31, 2018)

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Source: Bloomberg L.P., as of March 31, 2018. Past performance does not guarantee future results. An investment cannot be made directly into an index. Index returns do not represent fund returns.

Performance statistics - Market-cap vs. equal weighting 2003-2018

  Cumul. Return Avg. Ann. Return Ann. Std. Dev Ann. Semi-Dev Sharpe Ratio Sortino Ratio
S&P 500 Equal Weight Index 472.41% 12.27% 15.79% 17.00% 0.70 0.65
S&P 500 Index 327.64% 10.12% 13.32% 15.65% 0.67 0.57

Source: FactSet Research, Inc., Feb. 28, 2003 to March 31, 2018. Returns are the monthly frequency.

Balanced exposure

Equally weighting all stocks in a portfolio is a simple yet effective way to mitigate the overconcentration risk inherent in cap-weighted portfolios. Investors who want to invest in a broad market index, but don't want their investment to be dependent on the performance of a few large companies, may find an equal weight strategy to be an attractive choice.

Consider that over the last 10 years, the smallest 450+ stocks in the S&P 500 Equal Weight Index not only outperformed the same stocks in the cap-weighted S&P 500, they beat the entire S&P 500 Index's return by 17%.

10-Year cumulative total return S&P 500 EWI vs. S&P 500 (since inception March 2008 - March 2018)

Equal weight investing reduces the dominance that a few large stocks can have on overall performance.

Source: FactSet Research, Inc. as of March 31, 2018. Past performance does not guarantee future results. An investment cannot be made directly into an index. Index returns do not represent fund returns.

Disciplined rebalancing

Regularly rebalancing a portfolio to its equal weight status results in a buy/low sell high effect over time, as overvalued stocks are sold and undervalued stocks are bought. Systematic rebalancing has been an important contributor to equal weight strategies' historical outperformance versus cap-weighted strategies.

Performance attribution of S&P 500 Equal Weight Index (April 24, 2003 to March 31, 2018)

The majority of S&P 500 equal weight outperformance versus the S&P 500 Index (cap weight) can be attributed to disciplined quarterly rebalancing.

Rebalancing: Equal weight exposure is maintained through quarterly rebalancing, which creates, as a byproduct over time, a buy low/sell high effect.

Sector allocation: More consistent exposure to sectors over time contributes to potential outperformance.

Source: FactSet Research Systems, Inc., as of March 31, 2018. Past performance does not guarantee future results. An investment cannot be made directly into an index. Index returns do not represent fund returns. The chart above is based on the Brinson Attribution Model, which used monthly holdings data back to inception. The Sector Allocation component is the Allocation Effect, which is the portion of portfolio excess return attributed to taking different group bets from the benchmark. The Rebalance Effect is the portion of portfolio excess return attributable to choosing different securities within groups from the benchmark plus the portion of the portfolio’s excess return attributable to combining allocation decisions with relative performance.

Historical outperformance

Introduced in 2003, the Invesco S&P 500 Equal Weight ETF (RSP) was the industry's first smart beta ETF. RSP equally weights each stock in the S&P 500, ensuring all names within the index have the same opportunity to influence fund returns. Balanced exposure combined with a systematic quarterly rebalance has helped RSP to historically outperform the cap-weighted S&P 500. Over time, regularly rebalancing a portfolio to its equal weight status results in a buy/low sell high effect as the strategy sells overvalued stocks and buys those that are undervalued.

Average Annualized Rolling Return
For Rolling Monthly Periods (NAV Performance)

% of Time RSP Outperforms S&P 500 Index

Source: FactSet Research, Inc. as of March 31, 2018. The fund's total expense ratio is 0.20%. Performance is at NAV. Click here for standardized performance. Market returns are based on the midpoint of the bid/ask spread at 4 p.m. ET and do not represent the returns an investor would receive if shares were traded at other times. Performance data quoted represents past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than performance data quoted. After-tax returns reflect the highest federal income tax rate but exclude state and local taxes. Fund performance reflects applicable fee waivers, absent which, performance data quoted would have been lower. After Tax Held and After Tax Sold are based on NAV. Returns less than one year are cumulative. As the result of a reorganization on April 6, 2018, the returns presented reflect performance of the Guggenheim predecessor fund. Invesco is not affiliated with Guggenheim.


Lipper peer group ranking:

7th percentile since inception (16 of 238)

Multi-Cap Core Funds as of March 31, 2018. The Lipper one-year rank is 66% (507 of 768), the three-year rank is 44% (286 of 649), the five-year rank is 37% (208 of 570) and ten-year rank is 6% (22 of 399).

Since Inception Lipper Rank data begins the month-end date of the ETF’s inception month. Lipper fund percentile rankings are based on total returns, excluding sales charges and including fees and expenses, and are versus mutual funds, ETFs and funds of funds in the category tracked by Lipper.

Lower-cost1, tax-efficient2 option

RSP is an efficient, lower-cost option relative to its peer group. RSP features an expense ratio of 0.20% and no history of capital gains distribution due to its in-kind creation and redemption process 3. In contrast, Lipper reports a median expense ratio of 1.05% and an average capital gains rate of 2.26% for multi-cap core funds.

RSP expense ratio and capital gains exposure compared to Lipper peer group

Source: Lipper as of March 31, 2018. Past performance does not guarantee future results. An investment cannot be made directly into an index. Index returns do not represent fund returns. Lipper Multi-Cap Core Fund Classification median expense ratio and average annualized capital gains rate (% NAV) are based on open-ended, no-load mutual funds and ETFs; excludes funds of funds. Multi-Cap Core Funds as of March 31, 2018. ETFs generally have lower expenses than actively managed mutual funds due to their different management styles. Most ETFs are passively managed and are structured to track an index, whereas many mutual funds are actively managed and thus have higher management fees. Unlike ETFs, actively managed mutual funds have the ability react to market changes and the potential to outperform a stated benchmark. Since ordinary brokerage commissions apply for each ETF buy and sell transaction, frequent trading activity may increase the cost of ETFs. ETFs can be traded throughout the day, whereas, mutual funds are traded only once a day. While extreme market conditions could result in illiquidity for ETFs, typically they are still more liquid than most traditional mutual funds because they trade on exchanges. 1 Since ordinary brokerage commissions apply for each buy and sell transaction, frequent trading activity may increase the cost of ETFs. 2 Invesco does not offer tax advice. Please consult your tax adviser for information regarding your own personal tax situation. 3 While it is not Invesco intention, there is no guarantee that the fund will not distribute capital gains to its shareholders.

Contact us

RSP offers a simple, straightforward methodology and dynamic alternative to traditional core holding and cap-weighted strategies. Contact us to learn more about RSP or other products in our suite of equal weight ETFs.



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Risks & other information

Beta is a measure of risk representing how a security is expected to respond to general market movements.

Smart Beta represents an alternative and selection index based methodology that seeks to outperform a benchmark or reduce portfolio risk, or both in active or passive vehicles. Smart beta funds may underperform cap-weighted benchmarks and increase portfolio risk.

Cumulative return is the aggregate amount an investment has gained or lost over time.

The average annual return is the annual geometric mean using the cumulative return.

Standard deviation measures a portfolio's range of total returns and identifies the spread of a portfolio's short-term fluctuations.

Semi-deviation is the square root of the average squared negative deviation from the mean.

Sharpe ratio is the ratio of the annualized average return to its standard deviation.

Sortino ratio is the ratio of the average return to the semi-deviation.

Neither the underlying Index nor the benchmark indexes charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown; nor do any of the indexes lend securities, and no revenues from securities lending were added to the performance shown. In addition, the results actual investors might have achieved would have differed from those shown because of differences in the timing, amounts of their investments, and fees and expenses associated with an investment in the Fund.

The opinions expressed are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. All data provided by Invesco unless otherwise noted.

There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The fund's return may not match the return of the underlying index. The fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the fund.

Investments focused in a particular sector, such as consumer discretionary, financials, health care, industrials and information technology, are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.

The fund is non-diversified and may experience greater volatility than a more diversified investment.

Investing in securities of large-cap companies may involve less risk than is customarily associated with investing in stocks of smaller companies.

S&P 500 Equal Weight Index is an equal weight version of the S&P 500 Index.