Keep An Eye On This Equal-Weight ETF Giant In October

Stocks are off to a rough start this month. Just two days into the 10th month of the year and the S&P 500 is off to its worst start to any quarter in more than a decade. That means equities have some work to do to live up to their bullish October reputation.

If stocks do get in gear this month, hopefully sooner than later, the Invesco S&P 500 Equal Weight ETF RSP, long the dominant name among equal-weight exchange traded funds, could be worth considering. CFRA Research labeled RSP its focus ETF for October.

The $15.6 billion RSP debuted in April 2003 and tracks the S&P 500 Equal Weight Index, the equal-weight alternative to the cap-weighted benchmark.

Why It's Important

RSP is slightly trailing the SPDR S&P 500 ETF Trust SPY, world's largest ETF and oldest dedicated to the S&P 500, this year, but the equal-weight has been a winner over the long haul.

“Relative to the SPDR S&P 500 Index, the oldest and largest ETF that tracks the prominent S&P 500 Index, RSP has underperformed slightly year-to-date through September 25 (20.1% vs. 20.8%) and lagged on a three-year annualized basis (10.9% vs. 13.4%),” said CFRA Director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Wednesday.

“There is a slight expense ratio spread between the two funds, as RSP’s 0.20% expense ratio is 11 basis points higher. But, to CFRA, the performance differential and indeed the appeal of RSP stems from the portfolio construction distinction.”

RSP holds the same 505 stocks found in SPY, but the equal-weight ETF's largest holding commands 0.24% of its weight compared to Microsoft Corporation MSFT accounting for 4.24% of SPY.

“At the sector level, both ETFs held the most exposure in Information Technology, but RSP’s 14% weighting at the end of August was much smaller than SPY’s 22%,” said Rosenbluth.

What's Next

RSP could also be a consideration for investors looking for value exposure as value stocks represent about 41% of the fund's weight. Rosenbluth cites other favorable factors for investors to consider.

“Beyond the portfolio, CFRA finds RSP appealing. CFRA thinks the fund is trading with bullish technical trends as it is above its 200-day moving average,” said the analyst. “RSP’s 0.20% expense ratio is relatively low for an equity ETF and is half what the fund charged two years earlier. In addition, the fund trades with a tight bid/ask spread of just $0.03. RSP has an average daily trading volume in the last six months of 620,000 shares, equal to $66 million, which supports its liquidity.”

CFRA has an Overweight rating on RSP.

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