Invesco unveils synthetic S&P 500 equal weight ETF

Jan 21st, 2025 | By | Category: ETF and Index News

Invesco has launched a new ETF in Europe that combines equally weighted exposure to the S&P 500 with the structural advantages of a multi-counterparty swap-based replication model.

Gary Buxton, Head of EMEA and APAC ETFs at Invesco.

Gary Buxton, Head of EMEA and APAC ETFs at Invesco.

The Invesco S&P 500 Equal Weight Swap UCITS ETF is listed on multiple exchanges, including the London Stock Exchange in US dollars (SPWS LN) and British pounds (RSPB LN), Xetra (RSPS GY) and Euronext Milan (RSPS IM) in euros, and SIX Swiss Exchange (RSPS SW) in Swiss francs.

The ETF has an annual management fee of 0.20%.

The fund tracks the S&P 500 Equal Weight Index, which contains the same constituents as the traditional S&P 500 Index but weights each company equally at every rebalancing dates, as opposed to weighting them by market capitalization.

Invesco notes that demand for equal-weight strategies has been on the rise as investors seek alternatives to the growing concentration in the largest-cap stocks within traditional market cap-weighted investments. Currently, the ten largest companies in the S&P 500 account for approximately 37% of the index’s total weight.

This trend has contributed to more than $10 billion of net inflows into equal weight ETFs since July 2024, more than doubling the assets under management in these products.

Unlike other equal-weight ETFs on the market, the new Invesco ETF adopts synthetic replication, making it the first swap-based equal-weight ETF globally. Through this structure, the ETF holds a basket of quality equities while using swap contracts with leading financial institutions to deliver the performance of the index.

Invesco is a longstanding leader in swap-based ETFs, with over $65 billion in assets under management in its synthetic ETF range. This suite includes the $39 billion Invesco S&P 500 UCITS ETF, the largest swap-based ETF in the world.

Swap-based ETFs have experienced renewed popularity in recent years as investors increasingly recognize their structural benefits, including tax efficiency in specific scenarios.

One key advantage of swap-based ETFs is their ability to mitigate the impact of withholding taxes on dividends. For non-US investors, dividend income from US equities is typically subject to a 15% withholding tax when held in Irish-domiciled funds. Synthetic ETFs, however, do not directly own the underlying securities. Instead, they hold substitute baskets comprising non-distributing US stocks or non-US securities. Due to the regulatory treatment of swap arrangements, synthetic ETFs are not liable for this tax, resulting in enhanced performance.

Gary Buxton, Head of EMEA and APAC ETFs at Invesco, commented: “We are excited to kick off the new year with an ETF that combines two of Invesco’s largest and most well-established areas of expertise. Globally, we are a market leader in equal-weight equity exposures, an area of rapid growth where we saw European demand really accelerate in 2024, and we are now delivering it via the robust and highly efficient swap-based structure we created more than 15 years ago. We have the largest swap-based ETF in the world, and investors can now benefit from the same proven advantages for their S&P 500 Equal Weight exposure.”

Chris Mellor, Head of EMEA ETF Equity Product Management at Invesco, elaborated on the benefits of the ETF’s synthetic structure: “When a Europe-domiciled ETF uses swaps to track certain core US indices, the swap counterparties are not required to pay tax on the dividends. That enables us to negotiate better terms with those swap counterparties, including receiving the gross return on the index, which is a demonstrable advantage over a physically replicated ETF that typically pays a 15% tax on dividends. In the case of S&P 500 Equal Weight, this corresponded to around a 0.2% p.a. improvement based on current dividend levels.”

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