Happy Birthday, RSP: The Equal-Weighted ETF Turning 20

Happy Birthday, RSP! The Invesco S&P 500 Equal Weight ETF (RSP) is celebrating its 20th anniversary today, marking two decades of providing investors with a unique approach to indexing the S&P 500. Launched on January 23, 2003, RSP was the first equal-weighted ETF to track the S&P 500, offering investors an alternative to the market-cap-weighted SPDR S&P 500 ETF (SPY). Over the past two decades, RSP has proven to be a valuable addition to investors' portfolios, demonstrating strong performance and risk-adjusted returns compared to its market-cap-weighted counterpart.

RSP's equal-weighting strategy allocates roughly the same 0.20% weighting in each of its 503 holdings, ensuring that the fund is not overly concentrated in a few large-cap stocks. This approach has several benefits, including better diversification, reduced risk, and the potential for higher returns during market downturns. In 2022, for example, RSP's risk-adjusted return was 1.12, compared to SPY's 0.94, despite incurring a slightly higher standard deviation. This demonstrates the effectiveness of RSP's strategy in managing risk and delivering strong performance.

One of the key factors driving RSP's outperformance is its quarterly rebalancing process. RSP trims the positions of recent winners and boosts the shares of recent underperformers, ensuring that the portfolio remains equally weighted and diversified. This rebalancing process helps to mitigate the impact of market downturns and maintains the fund's diversification and equal weighting.

RSP's sector diversification is another factor contributing to its risk-adjusted performance. With 14% of assets in industrials, 14% in financials, 14% in health care, and 13% in information technology, RSP is more diversified than SPY, which has a 26% stake in information technology and more moderate exposure to other sectors. This diversification helps RSP to better weather market fluctuations and reduce the impact of sector-specific downturns.

In conclusion, RSP's equal-weighting strategy, quarterly rebalancing, and sector diversification have contributed to its strong performance and risk-adjusted returns over the past two decades. As RSP celebrates its 20th anniversary, investors can look forward to continued outperformance and a valuable addition to their portfolios. Happy Birthday, RSP!