Understanding Leveraged Equal Weight ETFs and Their Benefits

A leveraged equal weight ETF is a type of exchange-traded fund that aims to provide a more balanced approach to investing by allocating a fixed weight to each stock in the underlying index.

These ETFs use leverage to amplify the returns of the underlying index, which means they can potentially offer higher returns, but also come with higher risks.

Leverage is achieved through the use of derivatives, such as futures or options contracts, which can magnify both gains and losses.

By using a fixed weight, equal weight ETFs aim to reduce the impact of individual stock performance on the overall portfolio, providing a more stable and diversified investment option.

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When investing in a leveraged equal weight ETF, it's essential to understand the operational fees involved. Operational fees can eat into your returns, so it's crucial to know what you're paying.

The expense ratio for this ETF is 0.20% of the assets under management (AUM). This is a relatively low fee compared to other investments.

The management fee is also 0.20% of the AUM, which is the same as the expense ratio. This suggests that the management fee is a significant portion of the overall operational fees.

Let's break down the operational fees in more detail:

As you can see, the expense ratio and management fee are the two largest operational fees. The 12b-1 fee and administrative fee are not applicable to this ETF.

The Invesco S&P 500 Equal Weight ETF is a fund that has been around since 2003.

Its legal name is Invesco S&P 500 Equal Weight ETF, and it's a part of the Invesco ETF family.

The fund's inception date is April 24, 2003.

Here are some key details about the fund:

The fund's currency is USD, and it's domiciled in the US.

The performance of a leveraged equal weight ETF is impressive, with a 1-year return of 12.8% and a 3-year return of 4.1% annualized. This is quite a feat, especially considering the 3-year category return low of -11.9%.

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Here are some key performance metrics to keep in mind:

The 10-year return of 10.1% annualized is particularly noteworthy, especially when compared to the 10-year category return low of -0.5%. This suggests that the leveraged equal weight ETF has consistently outperformed its peers over the long term.

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The Total Return Ranking is an important metric to consider when evaluating the performance of an investment. It shows how a fund ranks within its category over different time periods. For example, over the past year, the RSP Return was 12.8%, ranking 87.75% in its category.

One way to visualize this ranking is to look at the returns over different time periods. Here's a breakdown of the RSP Return and its ranking over the past year, 3 years, 5 years, and 10 years:

*Annualized

Looking at the returns over different time periods can give you a sense of how consistent the fund's performance has been. For example, over the past 10 years, the RSP Return has been 10.1%, ranking 79.83% in its category. This suggests that the fund has been relatively consistent in its performance over the long term.

Let's take a closer look at the dividend yield analysis of RSP. The dividend yield is a crucial metric for investors, and RSP's yield stands at 1.43%.

RSP's dividend yield is significantly lower than the category high of 25.47%. This suggests that RSP may not be the best choice for investors seeking high dividend income.

Here's a comparison of RSP's dividend yield with its category peers:

RSP's dividend yield ranks 41.43% in its category, indicating that it's above average but not the highest.

Market weight vs. S&P 500 ETFs can behave very differently, despite tracking the same companies. The S&P 500 Equal Weight Index (EWI) was created in Jan. 2003 as an equal-weight version of the popular S&P 500 Index.

The equal weighting of the S&P 500 seeks to equally weigh all of the constituents in the index, as opposed to the traditional manner of weighting the S&P 500, which is by market capitalization. This results in two indexes with different properties and different benefits for investors.

For another approach, see: Tiger Weight

Market cap weighting typically results in a fund being concentrated in a handful of companies and/or sectors. For example, the technology sector comprises more than 1/4 of the S&P 500, and just Apple and Microsoft make up more than 12% of the index.

An equal weighting scheme, on the other hand, gives more agnostic, equal representation to all companies. Each of the 500 stocks in the RSP ETF, including Apple and Microsoft, comprises around 1/500th (or 0.2%) of the total fund.

Here's a comparison of the fees between a market-weighted S&P 500 ETF and an equal-weight ETF:

Equal-weight ETFs offer more protection if a large sector experiences a downturn, and due to the equal weighting, small sectors underperforming can offset losses more than they would in a market-weight ETF.

Additional reading: Elk Weight

A leveraged equal weight ETF can be a great way to gain exposure to the S&P 500 index, but have you ever wondered how its portfolio composition compares to a traditional market-weighted ETF?

In an equal-weighted index, every stock has the same weight, regardless of its market capitalization. This means that even the smallest company in the S&P 500 has the same weight as Apple. The Invesco S&P 500 Equal Weight ETF (RSP) is a popular example of this type of ETF.

The sector weight in an equal-weighted index is determined by the number of companies in each sector. For example, if a sector contains 45 stocks, its weight should theoretically be 9%. This is in contrast to a market-weighted ETF, where the sector weight is based on the market capitalization of the companies in that sector.

Here's a comparison of the sector weights between the S&P 500 market-weighted index (MWI) and the S&P 500 equal-weighted index (EWI) as of June 30, 2023:

The stock sector breakdown is a crucial aspect of portfolio composition. It's essential to understand the different sectors and their weightings to make informed investment decisions.

Technology is the largest sector in the market, accounting for 14.31% of the total weighting. This is significantly higher than the Industrials sector, which only accounts for 14.15%.

The Financial Services sector is also a significant player, making up 13.54% of the market. This is closely followed by the Healthcare sector, which accounts for 13.01%.

The Consumer Cyclical sector is another notable player, making up 12.02% of the market. This is slightly lower than the Consumer Defense sector, which accounts for 7.38%.

Utilities and Real Estate are two of the smallest sectors in the market, with weightings of 6.22% and 5.68%, respectively.

Here's a breakdown of the sector weightings:

These sector weightings can have a significant impact on the overall performance of your portfolio. By understanding the different sectors and their weightings, you can make more informed investment decisions and adjust your portfolio accordingly.

The S&P 500 Equal Weight Index is a unique way to invest in the S&P 500, where every stock in the index has the same weight, regardless of its market capitalization. This means that even Apple, one of the largest companies in the world, will have the same weight as the smallest company in the index.

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The S&P 500 Equal Weight Index was created in Jan. 2003, as a way to offer an alternative to the traditional market-weighted S&P 500 Index. This index is rebalanced quarterly, ensuring that the weights of each stock remain equal.

The sector weights in the S&P 500 Equal Weight Index are determined by the number of companies in each sector, rather than their market capitalization. For example, if a sector contains 45 stocks, the weight of that sector would be (45 / 500) x 100 = 9%.

Here's a comparison of the sector weights between the S&P 500 Equal Weight Index and the traditional S&P 500 Index as of June 30, 2023:

As you can see, the sector weights can differ significantly between the two indexes. This can be beneficial for investors who want to diversify their portfolio and reduce their exposure to any one sector.

The equal weighting of the S&P 500 seeks to allocate a fixed weight (0.2% of the index total) to each constituent, ensuring that every stock has an equal say in the index's performance.

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Investing in a leveraged equal weight ETF comes with inherent risks, including possible loss of money.

Shares are not actively managed, and their value may not match the return of the underlying index.

Ordinary brokerage commissions apply, and the fund's return may not match the return of the underlying index.

The fund is subject to certain other risks, including those related to short selling and margin maintenance requirements.

Investments focused in a particular industry or sector, like the S&P 500 Equal Weight ETF, are subject to greater risk and market volatility.

Stocks of medium-sized companies, which are often more volatile and illiquid, tend to be more vulnerable to adverse developments.

The S&P 500 Equal Weight ETF has a greater tilt toward small-cap stocks than the S&P 500, making it more volatile.

Volatility tends to be higher on the S&P 500 EWI versus the S&P 500, with an annualized standard deviation of 20.76% for the past five years.

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Equal weight and market cap weight are two different approaches to investing in a portfolio. An equal-weight portfolio invests capital equally into all of the constituents in that portfolio.

The S&P 500 Index can be thought of like a pie chart, where market cap weight ETFs break up the pie into slices based on market cap. This means that larger companies get a bigger slice of the pie.

In contrast, an equal-weight ETF, like the S&P 500 Equal Weight Index (EWI), gives each company the same-sized slice, regardless of its size or sector. This results in two indexes with different properties and benefits for investors.

Market cap weight favors larger companies, and the performance of the portfolio is influenced more by the performance of those larger companies.

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The RSP ETF is an Invesco fund that launched in early 2003. It's based on the S&P 500 Index but with an equal weighting scheme.

This means each of the 500 stocks in the index has an equal percentage of the fund, around 0.2%. The fund constantly sells winners and buys losers to maintain these weights, rebalancing once per quarter.

The RSP ETF takes a contrarian approach compared to a cap-weighted index, trading against Momentum. It costs a bit more than the typical S&P 500 ETF, with a fee of 0.20%, but it has over $50 billion in assets.

This fund solves the problem of single company risk, which is a major issue with market cap weighted index funds. For example, at the time of writing, just Apple and Microsoft make up more than 12% of the S&P 500 Index.

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