Invesco S&P 500 Equal Weight constructs a portfolio of equal-weighted U.S. large caps for a low fee. This approach tilts the portfolio toward mid-cap stocks and requires high turnover compared with market-cap weighting, increasing transaction costs and adding to its volatility.

The fund replicates the S&P 500 Equal Weight Index, which assigns an equal weight to all constituents of the S&P 500 on a quarterly basis. The index inherits the size, liquidity, and profitability screens of the S&P 500. Index inclusion is ultimately decided by a committee-based approach, which lacks transparency but adds flexibility to potentially reduce unnecessary changes during reconstitution. This tames transaction costs compared with more-rigid rules-based indexes.

To maintain equal weights, the index systematically sells outperforming stocks and buys underperformers during its quarterly rebalancing. This pulls the portfolio toward smaller and cheaper stocks, taking a contrarian approach instead of letting winners ride. Quarterly rebalancing prevents constituent weights from running too far but results in higher turnover than its market-cap-weighted peers, albeit still much lower than the large-blend Morningstar Category average. 

Equal weighting has its advantages. It effectively diversifies stock-specific risk and can shield the fund from the market’s manic episodes. It limits exposure to richly valued names and sectors, which is a disadvantage of market-cap weighting. This provides an edge when smaller and cheaper stocks outperform, although smaller stocks tend to be more volatile than larger, more established ones. 

Tilting toward the S&P 500’s smallest and most volatile holdings courts a significant amount of risk. As a result, this fund may deliver bouts of outperformance, but it’s unlikely to consistently deliver better risk-adjusted returns than its Russell 1000 Index category benchmark over the long term.

Analyst Rating

A mid-cap fund hiding in plain sight.

Associate Analyst

Mo'ath Almahasneh

Allstate

Expedia

Gartner

Progressive

Cardinal Health

Willis Towers Watson PLC

Fair Isaac

Assurant

QUALCOMM

Synopsys

Equal weighting limits concentration risk but tilts the portfolio toward smaller, riskier stocks. Maintaining this strategy requires higher turnover and associated trading costs than market-cap-weighted peers. It earns an Average Process Pillar rating.

Average

Process

The index management team that leads this fund is backed by a robust supporting cast of analysts, traders, and technology platforms. Those resources should facilitate tight index tracking, affirming the experienced group’s Above Average People Pillar rating.

Peter Hubbard, Michael Jeanette, Tony Seisser, and Pratik Doshi are named managers on this fund. Hubbard heads up the group. The most seasoned of the bunch, he has managed portfolios for Invesco since 2007. Jeanette started as a portfolio manager in 2008 and leads the equity group under Hubbard. Seisser and Doshi came aboard in 2013 and 2018, respectively, rounding out an experienced quartet.

Most of the day-to-day operations are left to a web of supporting portfolio managers and analysts. Invesco’s global trading desk executes all trades. That frees up the named managers to confer with index providers to ensure investability, tackle corporate actions, and improve tax efficiency, among other long-term projects. An independent risk committee monitors the operation and meets with the managers on an ongoing basis.

Invesco’s proprietary portfolio management dashboard automates much of the team’s workflow. It consolidates a wealth of fund- and index-specific information to promote close tracking. The platform does not handle every task that the team must complete, but it is flexible enough to accommodate most other features that Invesco decides to build into it.

Above Average

People

Invesco, with USD 1.3 trillion in AUM, tries to cover a great many bases. The firm succeeds in a number of areas but also has its share of subpar offerings, along with many others somewhere in the middle. The firm retains a Morningstar Parent rating of Average.
Invesco is now 3.5 years past the closing of its merger with OppenheimerFunds. While there were some glitches, overall the process avoided the pitfalls that can accompany such corporate actions. On the positive side, Invesco’s international-equity teams—its EQV team in Texas and the New York-based group inherited from Oppenheimer—remain strong points. The firm’s ETF lineup includes the popular Nasdaq-focused QQQ; passive strategies make up around 30% of Invesco’s AUM. 
However, the extensive U.S.-equity lineup remains a weak link despite manager shuffles aimed at bolstering poor performers. The retirement of Meggan Walsh, who managed the relatively few appealing offerings in that group, didn’t help. Fixed-income offerings run the gamut: The multisector and short-term-bond areas are good, but corporate high-yield is less impressive.
Invesco has a substantial presence outside the U.S., but fund performance has been subpar in Asia, with manager turnover an ongoing concern. In the U.K. and Europe, the picture has brightened, but that region still can’t be considered a strength.

Parent

Invesco S&P 500 Equal Weight ETF

RSP tracks an equal-weighted index of S&P 500 companies.

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