How to Invest in Invesco S&P 500 Eql Wght ETF

The Invesco S&P 500 Equal Weight ETF (RSP 1.4%) offers a different take on a traditional S&P 500 ETF. The S&P 500 index is a market-cap-weighted index, which means each holding in the fund is weighted relative to its market capitalization, or the total value of its outstanding shares. Likewise, most S&P 500 index funds are market-cap weighted. However, as the name suggests, each holding in the Invesco S&P 500 Equal Weight ETF is equally weighted.

Read on to learn how to invest in the Invesco S&P 500 Eql Wght ETF and find out whether this fund is right for your investment portfolio.

Overview

What is the Invesco S&P 500 Eql Wght ETF?

The Invesco S&P 500 Equal Weight ETF, or Invesco S&P 500 Eql Wght ETF, is an ETF that tracks the 500 companies in the S&P 500 index. It trades under the ticker RSP. But unlike most S&P 500 ETFs, the Invesco S&P 500 Eql Wght ETF uses an equal weighting system, with each holding given a 1/500th weighting.

The case for investing in an S&P 500 ETF that uses an equal weighting system instead of the standard market-cap weighting system lies in the fact that the S&P 500 index is heavily concentrated in just a handful of giant companies. The largest 50 holdings of the S&P 500 index account for about 50% of its weighting, while the smallest 50 companies only make up about 1%.

Stocks with a smaller market capitalization are thought to have more growth potential (although this hasn't panned out in recent years). In theory, though, equal weighting provides the opportunity for outperformance. While the ETF provides more exposure to stocks with smaller market capitalizations, it doesn't provide exposure to small-cap stocks or even mid-cap stocks. As of April 30, 2024, the S&P 500 requires that companies have an $18 billion market cap to join the index. Any stock with a market cap above $10 billion is usually considered a large-cap stock.

How to invest

How to buy the Invesco S&P 500 Eql Wght ETF

The process for investing in ETFs like the Invesco S&P 500 Eql Wght ETF is simple. You'll buy and sell shares of the fund the same way you'd buy and sell shares of individual stocks. To start investing, follow these four steps:

1. Open a brokerage account: You can easily open a brokerage account online in just a few minutes by providing some basic information, like your name, Social Security number, date of birth, and contact info. If you want to start investing for retirement, you could opt for an individual retirement account, like a Roth IRA, instead. Once you've opened your account, you'll need to deposit funds before you can make your first trade.
2. Figure out your budget: Before you start investing, you'll need to work out a budget. If you're investing for retirement, a good rule of thumb is to budget 15% of your pre-tax income. Decide how much you can afford to invest overall and how much of that money you want to invest in the Invesco S&P 500 Equal Weight ETF.
3. Do your research: Before investing money, it's vital to do your homework to determine if a fund or stock is the right fit for you. Before you buy shares of the Invesco S&P 500 Eql Wght ETF, make sure you understand how equal weighting works compared to market cap weighting. Make sure you understand the unique risks and rewards of investing in an equal-weighted S&P 500 ETF or mutual fund compared to a standard S&P 500 index fund.
4. Place an order. If you've decided the Invesco S&P 500 Eql Wght ETF is right for you, it's time to place an order. You'll need to enter the ETF's stock ticker, RSP. Next, you'll tell your brokerage how many shares you want to buy. If your broker allows fractional trading of ETFs, you could specify the total dollar amount you want to invest instead. You'll also need to decide whether you want to place a market order (meaning your broker will place the trade immediately, regardless of the market price) or a limit order (meaning your broker will only place the trade at the price you state). Once you've provided this information, you'll place your order to become an owner of the S&P 500 Eql Wght ETF.

Holdings of RSP

Holdings of the Invesco S&P 500 Eql Wght ETF

The Invesco S&P 500 Eql Wght ETF tracks the 500 companies represented in the S&P 500 index. As such, it has the same holdings as any S&P 500 index fund. When you buy shares of the fund, you'll become an investor in big-name companies like Microsoft (MSFT -0.1%), Apple (AAPL 1.88%), Amazon (AMZN 0.73%), Tesla (TSLA -3.46%), and Walmart (WMT -1.24%), along with a lot of companies you've probably never heard of.

While these giants account for an outsized share of a regular S&P 500 fund's holdings, each stock represented in the Invesco S&P 500 Eql Wght ETF is assigned a 0.2% weighting. Microsoft is currently the largest S&P 500 stock, accounting for 7% of its value. Meanwhile, the smallest stock is Bio-Rad Laboratories Inc. (BIO 0.47%) represents just 0.01% of the index's value. In the Invesco S&P 500 Eql Weight ETF, both Microsoft and Bio-Rad Laboratories get a weighting of 0.20%.

The weighting system translates to a portfolio that's less heavily concentrated in tech stocks, which have been the key driver of the S&P 500's recent performance. The tech sector accounts for 29% of the S&P 500's value, more than double any other sector. The Invesco S&P 500 Eql Weight S&P 500's largest concentration is in industrial stocks, which make up about 16% of its holdings. Tech stocks account for less than 13% of the fund's allocation.

Should I invest?

Should I invest in the Invesco S&P 500 Eql Wght ETF?

Traditional S&P 500 ETFs that use a market-cap weighting system have a solid track record of generating positive returns over long periods of time. That's why they're among the top ETFs for long-term investors. So, think carefully about your investment goals before you deviate from the tried-and-true formula.

Consider investing in the Invesco S&P 500 Eql Wght ETF if:

• You're wary of the S&P 500's heavy concentration in tech stocks.
• You already have significant exposure to the stocks that have driven the S&P 500's recent growth.
• You want more exposure to mid-cap stocks.

Think twice about investing in the Invesco S&P 500 Eql Wght ETF if:

• You're satisfied with the historical average annual returns of about 10% that a regular S&P 500 ETF provides.
• You believe the "Magnificent Seven" stocks (Microsoft, Google parent Alphabet (GOOG 1.72%) (GOOGL 1.54%), Meta Platforms Inc. (META -1.73%), Tesla, Amazon, Apple, and Nvidia (NVDA 3.08%) will continue to be key drivers of the S&P 500's returns.
• You're seeking exposure to small-cap stocks or mid-cap stocks since the S&P 500 index consists of large-cap stocks.

Dividends

Does the Invesco S&P 500 Eql Wght ETF pay a dividend?

Yes, the Invesco S&P 500 Eql Wght ETF pays a quarterly dividend based on the dividends the companies in the index pay to shareholders. As mid-May 2024, the fund's annual dividend yield was 1.53%, slightly higher than the 1.32% for the S&P 500 index. Many of the best dividend ETFs have significantly higher yields, though.

Expense ratio

What is the Invesco S&P 500 Eql Wght ETF expense ratio?

An ETF's expense ratio is the percentage of your investment that goes toward fees. The best ETFs offer low expense ratios because high fees diminish your returns over time.

The Invesco S&P 500 Eql Wght ETF has a 0.2% expense ratio. That means $20 of a $10,000 goes toward fees, while the remaining $9,980 gets invested in the fund. A 0.2% expense ratio probably shouldn't deter you from investing if you believe in the equal weighting methodology. But for comparison, consider that the top S&P 500 ETFs have expense ratios as low as 0.03%.

Historical performance

Historical performance of the Invesco S&P 500 Eql Wght ETF

The Invesco S&P 500 Eql Wght ETF has generally underperformed the S&P 500 over time. Although past performance isn't a guarantee of future returns, it's important to consider historical returns before you make an investment decision. Below, you'll find the averaged annualized returns of the Invesco S&P 500 Eql Wght ETF as of April 30, 2024. For comparison, we've included the returns of the Vanguard S&P 500 ETF (VOO 1.13%).

Related investing topics

The bottom line on the Invesco S&P 500 Eql Wght ETF

The Invesco S&P 500 Eql Wght ETF could be a decent fit for you if you're concerned that a regular S&P 500 ETF is too heavily concentrated in a few giant tech stocks. But historically, the equal weighting methodology has produced lower returns than the S&P 500 index's market-cap-weighting system. If you're looking to diversify your stock holdings, consider investing in sector ETFs in industries that are underweighted in the index or gaining exposure to a broader mix of stocks through an ETF that invests in small- or mid-cap stocks.

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