Hello there! It’s Isabel Wang from MarketWatch here, bringing you this week’s ETF Wrap. In this edition, we’re diving into the surge of interest and inflows in 2023 for an S&P 500 equal-weight ETF, despite the continued dominance of mega-cap technology stocks.
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The Invesco S&P 500 Equal Weight ETF has been one of the most popular U.S. exchange-traded funds this year, witnessing substantial growth in popularity.
The fund has drawn in over $10.1 billion in net inflows in 2023, including nearly $3.3 billion in just the past month. That’s a record net inflow for the largest equal-weight ETF since its inception in 2003, according to FactSet data.
Year-to-date net inflows of the $45 billion fund, which tracks the S&P 500 Equal Weight Index, make up 31% of its assets under management (AUM) at the beginning of 2023. This AUM stood at $32.8 billion, per FactSet data.
Now compare that to the year-to-date net inflows of all ETFs tracking the market-cap-weighted S&P 500, which have seen a massive $93 billion in net inflows. However, it only accounts for about 10.1% of their collective AUM at the start of the year, as per Nick Kalivas, head of factor and core equity ETF strategy at Invesco.
“As a proportion to the size, RSP is taking market share and finding greater interest in terms of flows, and that shows you that investors have been very interested in mitigating the concentration risk that’s present,” Kalivastold MarketWatch in a recent phone interview.
The significant inflows into RSP underscore the growing appeal of equal-weight investment strategies in 2023, despite the outperformance of a few mega-cap technology stocks creating debate over narrow-market leadership and its impact heading into 2024.
To check out what to expect from technology stocks in 2024, see: ‘Magnificent Seven’ up for another bull run?
“But since November, signs that the U.S. stock-market rally is broadening beyond the so-called Magnificent Seven stocks, have bolstered investors’ hopes heading into 2024. That also coincides with falling Treasury yields and expectations that the Federal Reserve next year will cut rates more than previously outlined.
The S&P 500 Equal Weight Index has risen 4.8% so far in December, compared to increases of 3.3% and 3.8% for the S&P 500 and Nasdaq 100, respectively, according to FactSet data. It’s also notable that the small-cap Russell 2000, which lagged behind most major indexes this year, has outpaced the S&P 500 this month by its widest margin since January 2021, according to Dow Jones Market Data.
Another reason the investing pendulum has swung back in favor of equal-weight funds is that vehicles like RSP also offer exposure to mega-cap technology stocks and the “relative stability” of the stock market at the same time,
