Invesco launches equal weight S&P 500 ETF on LSE

Apr 8th, 2021 | By | Category: Equities

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Invesco has launched an ETF in Europe providing equally weighted exposure to the companies that make up the S&P 500.

Invesco launches equal weight S&P 500 ETF on LSE

Invesco has launched a new ETF in Europe providing equally weighted exposure to S&P 500 constituents.

The Invesco S&P 500 Equal Weight UCITS ETF has listed on the London Stock Exchange and is available in US dollar (Acc: SPEQ LN; Dist: SPED LN) and pound sterling (Acc: SPEX LN; Dist: SPES LN) share classes.

The fund tracks the S&P 500 Equal Weight Index, which consists of all S&P 500 constituents equally weighted on a quarterly basis.

It comes with an expense ratio of 0.20% and uses direct physical replication.

Invesco offers a US-listed version of the strategy – the Invesco S&P 500 Equal Weight ETF (RSP US), listed on NYSE Arca – which houses $25.5 billion in assets.

Proponents of an equal-weight investment approach highlight how the strategy mitigates one of the most common criticisms of market capitalization-weighted indices – the concentration-risk imposed by the largest constituents.

For S&P 500, the ten largest constituents by weight currently constitute more than a quarter (27.8%) of the total index: Apple (5.8%), Microsoft (5.4%), Amazon (4.0%), Alphabet (3.8%), Facebook (2.1%), Tesla (1.5%), Berkshire Hathaway (1.5%), JP Morgan (1.4%), Johnson & Johnson (1.2%), and Visa (1.1%). In contrast, the S&P 500 Equal Weight Index weights each of the five hundred companies at just 0.2% at each quarterly rebalance.

As well as enhanced diversification at the stock level, the equal-weight version of the index offers reduced sector risk with the contribution of information technology stocks trimmed from 26.6% to 15.1%.

Despite diversification benefits, equal-weighted approaches may go through periods of relative underperformance, such as in momentum-driven markets, and when larger firms experience growth runs beyond the return on the broad market.

In recent months, however, the S&P 500 Equal Weight Index has significantly outperformed the regular S&P 500 as hopes of a vaccine-driven economic recovery alongside a renewed interest in value stocks (equal-weight indices tend to display a value tilt by virtue of their construction) has broadened the equity rally beyond the technology sector.

Between 1 October 2020 and 6 April 2021, the Invesco S&P 500 Equal Weight ETF (RSP US) delivered a return of 32.9% compared to 20.1% for the SPDR S&P 500 ETF (SPY US).

This outperformance has driven a surge of interest in equally weighted S&P 500 ETFs. The NYSE Arca-listed Invesco S&P 500 Equal Weight ETF has pulled in $6.7bn in net new assets since the beginning of October.

In Europe, the primary beneficiary of this interest has been the Xtrackers S&P 500 Equal Weight UCITS ETF (XDEW LN) from DWS, until now Europe’s only equal weight S&P 500 ETF. It has attracted net inflows of approximately $4.2bn since the beginning of October.

DWS’s XDEW houses $5.6bn in assets and comes with an expense ratio of 0.25%. It is listed on LSE, Xetra, and SIX Swiss Exchange.

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