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Perhaps you thought the stock market was coming out of 2023, the year of the Magnificent Seven, with that group of companies dominating the S&P 500’s performance. However, he still has seven companies with significant weight in the benchmark index. One way to reduce this risk is to park your money in an equal-weighted S&P 500 index fund. However, we found that the differentially weighted approach tends to perform better than the equally weighted index.
The Invesco S&P 500 Revenue ETF RWL tracks an index that weights S&P 500 SPX constituent companies by their total revenue over the past four quarters. The index and the exchange-traded funds that track it are rebalanced quarterly. This ETF is rated 5 stars (the highest rating) within the Large Value Fund category by Morningstar.
The S&P 500 is weighted by market capitalization. The Magnificent Seven Companies — Microsoft Corp.
MSFT,
Apple.
AAPL,
Nvidia Inc.
NVDA,
Amazon.com Inc.
AMZN,
Alphabet Co., Ltd.
Google
google,
Meta Platforms Co., Ltd.
Meta
and Tesla Inc.
TSLA
SPDR S&P 500 ETF Trust makes up a total of 28.9% of SPY’s portfolio. SPY is designed to track the performance of the index by holding all 500 stocks with the same market capitalization weighting as the index.
Nick Kalivas, head of factors and core ETF strategy at Invesco, said in an interview with MarketWatch that under an earnings-weighted approach, the fastest-growing large-cap stocks typically have a lower weight than a market-cap weighted index. Stated. He called return weighting “a way to access value and execute value-oriented strategies without the risk of pure deep value strategies.”
Performance comparison
The see-saw pattern of the S&P 500 Index’s performance in 2022 and 2023 shows how the return-weighted approach made it easier for investors to ride out volatility without succumbing to the temptation to sell their holdings and move to the sidelines. is shown. This kind of market timing can backfire. That’s because investors can remain on the sidelines long enough after the recovery begins to start having a negative impact on long-term performance.
Below is a comparison of the total returns of the Invesco S&P 500 Revenue ETF, Invesco S&P 500 Equal Weight ETF RSP, and SPDR S&P 500 ETF Trust over various time periods.
| ETF | Return in 2024 | Returning from the end of 2021 | Return in 2023 | Return in 2022 | 2021 Return | 3 years | 5 years | 10 years | 15 years |
| Invesco S&P 500 Revenue ETF RWL | 1% | 12% | 17% | -6% | 30% | 46% | 91% | 196% | 643% |
| Invesco S&P 500 Equal Weight ETF RSP | 0% | 1% | 14% | -12% | 29% | 32% | 76% | 173% | 671% |
| SPDR S&P 500 ETF Trust SPY | 3% | 7% | 26% | -18% | 29% | 39% | 103% | 232% | 674% |
| Source: FactSet | |||||||||
Total return includes reinvested dividends, less expenses, and is 0.39% of annual assets under management for RWL, 0.20% for RSP, and 0.0945% for SPY.
In 2022, SPY was down 18% and the equally weighted S&P 500 index was down 12%, while RWL was down just 6%. RWL was in the middle of the three companies in terms of performance in the 2023 rally. In other words, from the end of 2021 through Monday, the Invesco S&P 500 Revenue ETF was by far the best performer.
Looking back even further, all three ETFs performed well during the strong market of 2021. RWL had the best performance over his three-year period, outperforming equal-weighted ETFs over the five-year and 10-year periods as well.
The cap-weighted SPY is an overall winner over 5-, 10-, and 15-year time horizons, during which it ranks among the IT sector, along with technology-oriented companies in the communications services sector (including Alphabet and Meta) and the consumer space. also won. Discretionary sectors (such as Amazon and Tesla) have very strong influence.
Top holding stocks
Take a look at the top 10 Invesco S&P 500 Revenue ETFs. Together they represent 22.3% of the portfolio.
| company | ticker | Invesco S&P 500 Income ETF Percentage | Revenue – Reported for the last four quarters ($ million) |
| Walmart Co., Ltd. |
WMT |
4.0% | $638,785 |
| Amazon.com Inc. |
AMZN |
3.4% | $554,028 |
| Berkshire Hathaway Class B |
BRK |
2.5% | $349,271 |
| Apple. |
AAPL |
2.2% | $383,285 |
| exxon mobil company |
XOM |
2.1% | $344,999 |
| CVS Health Co., Ltd. |
CVS |
1.9% | $348,191 |
| United Health Group Co., Ltd. |
united nations |
1.9% | $371,622 |
| mckesson company |
Mac |
1.8% | $291,098 |
| Sencora Co., Ltd. |
C.O.R. |
1.6% | $262,173 |
| Costco Wholesale Co., Ltd. |
Fee |
1.6% | $245,652 |
| Source: Invesco, FactSet | |||
Walmart Co., Ltd.
WMT
Has a high ranking. The retailer has had the highest revenue among U.S. companies by a wide margin over the past four reported quarters. Because companies’ accounting calendars and financial reporting schedules, as well as the rebalancing schedules of the underlying indexes, differ, portfolio weights do not perfectly match relative returns. Rebalancing occurs after the close of business on the third Friday of March, June, September, and December.
For comparison, here are SPY’s top 10 holdings (in Alphabet’s case, it’s actually 11 stocks with two common stock classes), representing 33.1% of the portfolio.
| company | ticker | SPDR S&P 500 ETF Trust | Revenue – Reported for the last four quarters ($ million) |
| Microsoft Corporation |
MSFT |
7.4% | $218,310 |
| Apple. |
AAPL |
6.8% | $383,285 |
| Nvidia Inc. |
NVDA |
3.7% | $44,870 |
| Amazon.com Inc. |
AMZN |
3.5% | $554,028 |
| Alphabet Co., Ltd. Class A |
Google |
2.2% | $296,376 |
| Meta Platforms Co., Ltd. Class A |
Meta |
2.2% | $126,955 |
| Alphabet Inc. Class C |
google |
1.9% | $296,376 |
| Berkshire Hathaway Class B |
BRK |
1.7% | $349,271 |
| Broadcom Co., Ltd. |
AVGO |
1.3% | $35,819 |
| tesla company |
TSLA |
1.3% | $96,773 |
| Eli Lilly |
Lily |
1.2% | $32,073 |
| Source: State Street, FactSet | |||
There are only three companies on both lists: Amazon and Berkshire Hathaway Inc.
BRK
And apple.
Click on the ticker to learn more about each company, ETF, or index.
Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on MarketWatch’s quotes page.
Applying earnings weighting to small and mid-cap stocks
Kalivas said applying an earnings-weighted approach resulted in consistent outperformance compared to market capitalization-weighted indexes of small and medium-sized companies.
The S&P SmallCap 600 Index SML and the S&P MidCap 400 Index MID are also weighted by market capitalization, but due to size limitations, the effect is not as strong as for large-cap stocks.
For these indexes, the return-weighted approach creates a more concentrated portfolio that outperforms market capitalization-weighted indexes over time.
SPDR Portfolio S&P 600 Small Cap ETF SPSM has 5.7% weighting in the 10 largest holdings, while Invesco S&P Small Cap 600 Revenue ETF RWJ has 16.3% weighting in the top 10 holdings.
SPDR Portfolio S&P 400 MidCap ETF SPMD has a weight of 6.3% in the top 10 stocks, and Invesco S&P MidCap 400 Revenue ETF RWK has a weight of 17.4% in the top 10 stocks.
Here’s a performance comparison of these four ETFs:
| ETF | Return in 2024 | Returning from the end of 2021 | Return in 2023 | Return in 2022 | 2021 Return | 3 years | 5 years | 10 years | 15 years |
| Invesco S&P Small Cap 600 Revenue ETF RWJ | -1% | 2% | 16% | -11% | 53% | twenty four% | 101% | 165% | 799% |
| SPDR Portfolio S&P 600 Small Cap ETF SPSM | -1% | -Four% | 16% | -16% | 27% | 15% | 56% | one two three% | Not applicable |
| Invesco S&P Midcap 400 Revenue ETF RWK | 0% | 13% | twenty four% | -8% | 34% | 50% | 95% | 173% | 696% |
| SPDR Portfolio S&P 400 Mid-Cap ETF SPMD | 0% | 2% | 16% | -13% | twenty five% | twenty five% | 65% | 135% | 592% |
| Source: FactSet | |||||||||
Again, returns less annual expenses are 0.39% of assets for RWJ and RWK and 0.03% for SPSM and SPMD.
Despite increased expenses, the Invesco Fund’s income-focused approach has outperformed small- and mid-cap cap-focused approaches over the long term.
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