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

Smart Beta ETF report for RYF

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This story originally appeared on Zacks

Making its debut on 11/01/2006, smart beta exchange traded fund Invesco S&P 500 Equal Weight Financials ETF (RYF) provides investors broad exposure to the Financials ETFs category of the market.

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What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

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

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.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

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

RYF is managed by Invesco, and this fund has amassed over $496.21 million, which makes it one of the average sized ETFs in the Financials ETFs. This particular fund, before fees and expenses, seeks to match the performance of the S&P 500 Equal Weight Financials Index.

The S&P 500 Equal Weight Financials Index is an unmanaged equal weighted version of the S&P 500 Financials Index that consists of the common stocks of the following industries: banks, diversified financials, brokerage, asset manage-ment insurance and real estate, including investment trusts that comprise the Financials 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.

Annual operating expenses for this ETF are 0.40%, making it on par with most peer products in the space.

RYF's 12-month trailing dividend yield is 1.48%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

For RYF, it has heaviest allocation in the Financials sector --about 100% of the portfolio.

When you look at individual holdings, Msci Inc (MSCI) accounts for about 1.82% of the fund's total assets, followed by Moody's Corp (MCO) and Marketaxess Holdings Inc (MKTX).

The top 10 holdings account for about 16.81% of total assets under management.

Performance and Risk

The ETF has added about 40.65% so far this year and it's up approximately 72.56% in the last one year (as of 11/02/2021). In the past 52-week period, it has traded between $39.89 and $66.59.

The fund has a beta of 1.22 and standard deviation of 30.91% for the trailing three-year period, which makes RYF a medium risk choice in this particular space. With about 67 holdings, it effectively diversifies company-specific risk.

Alternatives

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

Vanguard Financials ETF (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF (XLF) tracks Financial Select Sector Index. Vanguard Financials ETF has $11.72 billion in assets, Financial Select Sector SPDR ETF has $45.10 billion. VFH has an expense ratio of 0.10% and XLF charges 0.12%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Financials 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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Invesco S&P 500 Equal Weight Financials ETF (RYF): ETF Research Reports

 

Moody's Corporation (MCO): Free Stock Analysis Report

 

MSCI Inc (MSCI): Free Stock Analysis Report

 

MarketAxess Holdings Inc. (MKTX): Free Stock Analysis Report

 

Financial Select Sector SPDR ETF (XLF): ETF Research Reports

 

Vanguard Financials ETF (VFH): ETF Research Reports

 

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Zacks Investment Research