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• The Invesco S&P 500 Equal Weight ETF has risen by over 4% this year.
• It has underperformed the broader market, which has risen by 14%.
• The fund has a long history of underperforming the S&P 500.

The Invesco S&P 500 Equal Weight ETF (RSP) has grown substantially since I wrote about it in June 2023. Its assets have jumped from $37 billion at the time to over $53 billion today and inflows are increasing. 
 

Invesco’s equal weight ETF is lagging

However, this trend happened even as the RSP ETF continued to underperform the S&P 500 by a wide margin. Its total return this year stands at 4.16% compared to the S&P 500 index’s return of 14.55%.

The same trend has happened in the longer term. In the past five years, the RSP ETF has returned 68% while the closely-watched SPY fund has returned over 103%. 

For starters, the Invesco S&P 500 Equal Weight ETF is a fund that seeks to solve a big problem that has existed in the S&P 500 for a long time. As a market cap-based ETF, the S&P 500 index tilts towards big companies like Nvidia, Microsoft, and Apple.

Indeed, recent data shows that the S&P 500 index’s gains account for more than a third of the gains this year. Since 2020, most of the gains in the S&P 500 index were mostly because of Magnificent companies like Microsoft, Apple, and Netflix. 

The RSP ETF is significantly different from other S&P 500 ETFs. For one, the ETF mostly tilts towards small and mid-cap companies, with industrials having the biggest share. They are followed by financials, technology, healthcare, and consumer discretionary. 

The S&P 500 index, on the other hand, is mostly made up of technology stocks, which account for over 32% of the fund. They are followed by financials, healthcare, and communication services. 
 

Is RSP ETF a good investment?

Therefore, the question is whether it makes sense to invest in the Invesco S&P 500 ETF, which is trading at a bargain with a forward P/E ratio of 17.5. This ratio is smaller than the forward S&P 500’s 21. 

Based on the historic performance, we can conclude that it is better to invest in generic S&P 500 ETFs like SPY and IVV instead of the equal-weighted one. That’s because I expect that technology companies will continue seeing stronger growth than industrials. 

The ETF will also likely continue to lag the SPY and QQQ funds because of the ongoing bullish estimates by Wall Street analysts. Analysts at Evercore, Goldman Sachs, and BMO have all boosted their S&P 500 forecasts this year.

(Click on image to enlarge)

RSP ETF chart

Technically, the equal-weighted ETF has formed a small double-top chart pattern at $168. In most cases, this is one of the most bearish patterns in the market, meaning that the fund could retreat to $158.46. This is an important level because it is the double top’s neckline and the highest swing on June 3rd.

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