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Is Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD) a Strong ETF Right Now?

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Designed to provide broad exposure to the Consumer Discretionary ETFs category of the market, the Invesco S&P 500 Equal Weight Consumer Discretionary ETF is a smart beta exchange traded fund launched on 11/01/2006.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

The fund is managed by Invesco. RCD has been able to amass assets over $491.38 million, making it one of the largest ETFs in the Consumer Discretionary ETFs. This particular fund, before fees and expenses, seeks to match the performance of the S&P 500 Equal Weight Consumer Discretionary Index.

The S&P 500 Equal Weight Consumer Discretionary Index equally weights stocks in the consumer discretionary sector of the S&P 500 Index.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Operating expenses on an annual basis are 0.40% for this ETF, which makes it one of the cheaper products in the space.

RCD's 12-month trailing dividend yield is 0.92%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

RCD's heaviest allocation is in the Consumer Discretionary sector, which is about 100% of the portfolio.

When you look at individual holdings, Dr Horton Inc (DHI - Free Report) accounts for about 1.92% of the fund's total assets, followed by Pultegroup Inc (PHM - Free Report) and Lennar Corp (LEN - Free Report) .

RCD's top 10 holdings account for about 18.77% of its total assets under management.

Performance and Risk

The ETF return is roughly 8.07% so far this year and is down about -15.63% in the last one year (as of 01/12/2023). In the past 52-week period, it has traded between $104.82 and $151.85.

The fund has a beta of 1.30 and standard deviation of 33.11% for the trailing three-year period, which makes RCD a medium risk choice in this particular space. With about 58 holdings, it effectively diversifies company-specific risk.

Alternatives

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

Vanguard Consumer Discretionary ETF (VCR - Free Report) tracks MSCI US Investable Market Consumer Discretionary 25/50 Index and the Consumer Discretionary Select Sector SPDR ETF (XLY - Free Report) tracks Consumer Discretionary Select Sector Index. Vanguard Consumer Discretionary ETF has $4.16 billion in assets, Consumer Discretionary Select Sector SPDR ETF has $13.59 billion. VCR has an expense ratio of 0.10% and XLY charges 0.10%.

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