Invesco has launched a new ETF in the US providing equally weighted exposure to a subset of S&P 500 companies with robust environmental, social, and governance (ESG) profiles.
John Hoffman, Head of Americas, ETFs & Indexed Strategies at Invesco.
The Invesco ESG S&P 500 Equal Weight ETF (RSPE US) has been listed on NYSE Arca and has come to market with $5 million in assets.
The fund offers investors a socially responsible alternative to the Invesco S&P 500 Equal Weight ETF (RSP US) which provides equally weighted exposure to the entire S&P 500.
RSP is one of the largest smart beta ETFs globally with $31.5 billion in assets under management. It has found an audience with investors who wish to mitigate the concentration risk posed by the largest S&P 500 constituents and gain relatively greater exposure to smaller-cap stocks within the bellwether benchmark.
Since its inception in 2003, RSP has delivered a cumulative return of 539.4%, outperforming the cap-weighted SPDR S&P 500 ETF (SPY US) which has risen 519.2% over the same period. RSP has also thus far delivered superior performance in the post-Covid market environment, gaining 131.2% since the S&P 500 bottomed out on 23 March 2020 compared with a 115.2% return for SPY. (Data as of 15 November)
The equal-weighted strategy has endured periods of underperformance, however, particularly if mega-cap companies are performing well relative to the entire US large-cap market.
Methodology
RSPE is designed for ESG-conscious investors who, similar to investors in RSP, are looking to enhance diversification by limiting the influence of mega-cap companies on portfolio performance.
The fund is linked to the newly created S&P 500 Equal Weight ESG Leaders Select Index which screens the parent S&P 500 Equal Weight Index to remove proven violators of UN Global Compact principles, companies embroiled in severe ESG-related controversies, and firms with business activities linked to alcohol, civilian firearms, controversial weapons, gambling, genetically modified organisms, military weapons, nuclear power, oil & gas, palm oil, recreational cannabis, thermal coal, and tobacco.
The methodology then selects the companies with the highest S&P DJI ESG scores while targeting 40% of the number of constituents from each Global Industry Classification Standard (GICS) industry group within the parent index.
The index is reconstituted annually and rebalanced to an equal weight allocation on a quarterly basis. Buffer rules help to limit unnecessary turnover.
As of the end of October, the index contained 185 constituents with the largest stock accounting for a weight of just 0.7%. Notable sector exposures included industrials (16.5%), information technology (16.3%), financials (14.1%), consumer discretionary (13.6%), health care (12.5%), and real estate (6.5%).
The ETF comes with an expense ratio of 0.20% which matches RSP’s price tag.
The fund comes hot on the heels of the Invesco ESG NASDAQ 100 ETF (QQMG US) and Invesco ESG NASDAQ Next Gen 100 ETF (QQJG US) which launched last month providing ESG-enhanced versions of the large-cap Nasdaq 100 and mid-cap Nasdaq Next Generation 100 Index.
Commenting, John Hoffman, Head of Americas, ETFs & Indexed Strategies at Invesco, said: “Invesco pioneered smart beta ETF investing nearly 20 years ago, and we have been a leader in ESG ETFs for over a decade. RSPE brings these two concepts together, creating the simplest way to invest in a balanced portfolio of the ESG leaders of the S&P 500 Index.”
Margaret Dorn, Head of ESG Indices in North America at S&P Dow Jones Indices, added: “S&P Dow Jones Indices has been a pioneer in ESG, providing benchmarks for investors seeking to align their investment goals with their individual values for over 20 years. The S&P 500 Equal Weight ESG Leaders Select Index reflects the continued evolution of ESG investing by combining a smart beta factor into an ESG benchmark. We are excited to license this index to Invesco to expand the opportunities of equal weight into the ESG environment.”