On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the Invesco S&P 500 Equal Weight ETF (RSP) with Chuck Jaffe of Money Life. The pair discussed several topics related to the fund to give investors a deeper understanding of the ETF.

Chuck Jaffe: One fund, on point for today. The expert to talk about it. Welcome to the ETF of the Week!

Yes, this is the ETF of the Week, where we get the latest take from Todd Rosenbluth, the head of research at VettaFi. And if you go to VettaFi.com, you can find the tools that you need to make yourself a savvier, smarter ETF investor, and to get more details on the new, newsworthy, trending, and timely ETFs that we talk about here.

Your ETF of the Week is…

Todd Rosenbluth: The Invesco S&P 500 Equal Weight ETF, RSP.

Chuck Jaffe: The RSP, the Invesco S&P 500 Equal Weight. This was ETF of the Week many, many moons ago, before you were the guest on ETF of the Week. It has not been of late, although you did pick one of its sisters — an equal-weighted sister fund — at one point. So, why this fund and equal weighting now?

Todd Rosenbluth: Many investors, in fact, you and I probably have talked quite a bit in the past year about the market needing to broaden out and for investors to look outside of those top 10 or top 20 stocks that you’d find within the U.S. equity marketplace. Well, this year, it’s working. RSP is outperforming the more market-cap-weighted S&P 500.

In fact, the top 10 stocks or top 20 stocks in the S&P 500 are down this year, and RSP has gathered $7 billion of new money in the first six weeks of the year. So, investors are embracing it; they’ve been rewarded. We wanted to shine a spotlight and maybe let’s just talk about what you get — and what perhaps you don’t get — within an equal-weight version of the S&P 500.

Chuck Jaffe: Yeah, please!

Todd Rosenbluth: So, you get the same 500 companies that you’d find within the S&P 500, but as the name suggests, equal weighting. So, when it gets rebalanced, it’s 20 basis points toward each stock, as opposed to being heavily concentrated in Nvidia, Apple, and Microsoft. You get technology stocks, but as I look at the holdings off to the side here — SanDisk, Micron Technology, Western Digital, and Teradyne — those are the four largest stocks, all technology stocks, roughly 25 to 50 basis points because they’ve risen in value.

You get more exposure to some of those smaller sectors, like industrials and utilities. Texas Pacific Land — I’m not sure that many people know of that company, but TPL is the ticker there. That is a top 10 holding within RSP, because utilities have done well this year and that stock in particular has done [well]. So, this is a large-cap portfolio, but it has more exposure to those small- and mid-sized large-cap companies, if I can mix up that analogy quite well. You get diversification that I think should catch a lot of people’s eyes.

Chuck Jaffe: But what you have is fundamentally a changed index. And I say that because while you said it’s large-cap, Morningstar categorizes the RSP as mid-cap value. It categorizes the SPY — that State Street SPDR S&P 500, so the classic S&P 500 fund — as large-cap blend. And obviously, performance-wise, we know that the large-cap fund and not equal-weighted has done really well for a while because the market’s been so narrow.

But they are… like, you could actually say, “I’ve got two different S&P 500 funds,” and have them occupy different places in a portfolio, which is pretty unusual. Is it?

Todd Rosenbluth: So, I think to your second point or your latter point, I do think this RSP can pair very well for people who have exposure to the market-cap-weighted S&P 500 — whether that’s SPY, or VOO, or IVV, or SPLG. All four of the ETFs that are out there. I understand what Morningstar is doing; they’re looking at the returns to come up with the style box classification.

But I find it hard to believe that this is going to be a mid-cap. I guess it just shows you how skewed the market has [become ]with those mega-cap companies, mostly technology-oriented — those top 10 or top 20 stocks — and how far they’ve run, so that they are all we consider as large-caps. All of those companies that I referenced that are part of RSP — they’re also in SPY and VOO; they just have much smaller weightings. These are all companies that are classified as large-cap companies according to the index provider, S&P Dow Jones Indices.

So, I think you can pair RSP very well, and you should be aware of what it’s not. It’s not going to be concentrated in those Apple, Microsoft, and Nvidias. That’s a good thing in terms of having diversification within your portfolio. It’s also a bad thing if the market runs much higher and faster with those mega-cap companies leading; RSP is going to lag behind, as it did in the last couple of years.

Chuck Jaffe: RSP has kind of been feast or famine. Like, the — when you compare it to its peer group, it’s much more likely to be near the top of its peer group, as it is year-to-date, or at the bottom of its peer group, than the classic fund, which is much more likely to gravitate toward the center of the peer group.

So, again, that’s why you can put these things in a portfolio and they can play well together, because they mix at different times. But it also suggests that you see times ahead where the RSP will keep doing what it’s been doing and be near the top for a while.

Todd Rosenbluth: If we have dispersion in the market — that’s another way of saying a number of stocks are doing well as opposed to a small handful of stocks — when there is dispersion, that is a good sign for RSP. That means that the 490 other companies outside of the top 10 are doing, or many of them are doing well. When you spread that risk around to individual companies, then you’re going to do much better.

If we have a concentrated marketplace [like]we had for a period of time, then RSP is going to lag behind. So, I think this pairs very well with a traditional index-based S&P 500 cap-weighted approach. But for some people, this is something you could also just lean into more if you think the market is going to continue to be disparate.

Chuck Jaffe: We know that you like active funds when you can find them. So, I’m curious because, again, this is a different flavor on the index. An index, for a lot of people, is the core of their holdings. But we also know — because there’s plenty of research, and I think you’ve done some of it, too — that if you get too many funds in any given category, you wind up with a closet index fund. You just get mud in your portfolio.

So, if somebody previously has listened and they’ve said, “Hey, I’ve got an S&P 500 fund and I’ve got a large-cap growth active manager,” should they be thinking, “I want to add something else”? Or is this a case of, “Yeah, you’ve just added too much and you’re going to get a muddy portfolio”?

Todd Rosenbluth: So, I think it matters how you’re looking to spread that risk around. I think that this fund — and you mentioned it has more value characteristics in some of the sectors that it is overexposed to or heavily exposed to, like industrials, like consumer staples, and real estate — those are more value-oriented sectors. So, with the portfolio that you just described there, is someone who has the S&P 500 and has a large-cap growth strategy.

This can be an index-based way of having a tilt toward value — not specifically choosing companies based on valuation characteristics, but spreading that risk around. And as such, you end up with a value tilt. I think this can pair very well. It’s more about whether you think you have too much concentration. Is your portfolio too focused on a handful of stocks? Your S&P 500 and your large-cap growth strategy probably have heavy exposure to Apple, Microsoft, and Nvidia.

So, if that concerns you, RSP is a great way to add that in. It’s index-based. It rebalances on a quarterly basis. So, the stocks that are more than 20 basis points today will not be that in a couple of months; there’ll be a reweighting down. So, there’s a chance to sell your winners and get some of the benefits that you might get with active management. But instead of trying to choose among those winners, you own all 500 companies. You’re not trying to find the best within those 500 companies; you own them all.

Chuck Jaffe: And if you want to own them all, in this case, you want to do it in the RSP. It’s the Invesco S&P 500 Equal Weight ETF!

The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yes, I am Chuck Jaffe. And if you want to learn more about what I do, go to MoneyLifeShow.com or search for Money Life on your favorite podcast app.

And if you want to get more information on your favorite ETFs — or just the ones we talk about here that might be your next favorite ETF — go to VettaFi.com, and dig into their suite of tools that will get you more information on the funds you’re interested in. They’re on X at @Vetta_Fi, And Todd Rosenbluth, their head of research, my guest, he’s on X too, at @ToddRosenbluth.

The ETF of the Week is here for you every Thursday. Make sure you don’t miss an episode by following along on your favorite podcast app. And we’ll be back with another ETF for you to consider next week. Until then, happy investing, everybody!

Note: This article was created in part through assistance from AI tools. The content has been thoroughly reviewed and edited by the author.