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Is Invesco S&P 500 Equal Weight Materials ETF (RTM) a Strong ETF Right Now?

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A smart beta exchange traded fund, the Invesco S&P 500 Equal Weight Materials ETF (RTM - Free Report) debuted on 11/01/2006, and offers broad exposure to the Materials ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

Because the fund has amassed over $538.51 million, this makes it one of the average sized ETFs in the Materials ETFs. RTM is managed by Invesco. RTM, before fees and expenses, seeks to match the performance of the S&P 500 Equal Weight Materials Index.

The S&P 500 Equal Weight Materials Index equally weights stocks in the materials sector of the S&P 500 Index.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

Operating expenses on an annual basis are 0.40% for RTM, making it one of the cheaper products in the space.

It's 12-month trailing dividend yield comes in at 1.53%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Materials sector - about 100% of the portfolio.

When you look at individual holdings, Mosaic Co/the (MOS - Free Report) accounts for about 5.81% of the fund's total assets, followed by Cf Industries Holdings Inc (CF - Free Report) and Newmont Corp (NEM - Free Report) .

The top 10 holdings account for about 44.56% of total assets under management.

Performance and Risk

Year-to-date, the Invesco S&P 500 Equal Weight Materials ETF has lost about -1.58% so far, and was up about 0.99% over the last 12 months (as of 05/17/2022). RTM has traded between $156.98 and $190.46 in this past 52-week period.

RTM has a beta of 1.04 and standard deviation of 28.23% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 29 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco S&P 500 Equal Weight Materials ETF is a reasonable option for investors seeking to outperform the Materials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Materials Select Sector SPDR ETF (XLB - Free Report) tracks Materials Select Sector Index and the FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR - Free Report) tracks Morningstar Global Upstream Natural Resources Index. Materials Select Sector SPDR ETF has $6.96 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $8.14 billion. XLB has an expense ratio of 0.10% and GUNR charges 0.46%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Materials ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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