RSPT ETF: Balanced Exposure to Technology (NYSEARCA:RSPT)

Diversification is one of the main benefits of ETFs. However, most funds use a float-adjusted market capitalization approach to their composition, leading to a concentration in the largest stocks. Many technology ETFs have very similar holdings to Microsoft (MSFT).), apple (AAPL) and Nvidia (NVDA) are often the top three weighted stocks, making up up to approximately 50% of the total fund ( Technology Select Sector SPDR® Fund ETF (XLK)). Personally, if I needed that much exposure to any of these stocks, I'd just go buy.

Invesco S&P 500 Equal Weight Technology ETF (NYSEARCA:RSPT) offers a different approach and, as its name suggests, includes a large number of technology stocks with relatively equal weighting.This means there is no concentration risk and therefore no need to worry about whether NVDA will reverse Will it skyrocket as much as it did when it soared, or will AAPL continue to underperform? I like this, but does it come at the expense of other areas such as performance?

performance

The first metric I always look at with an ETF is its performance relative to its peers. The long-term comparison with I is as follows.With nvesco QQQ Trust ETF as the benchmark, As a more direct comparison. Both XLK and RSPT Holds the same 67 shares, However, XLK is much more focused on the top 10 with 69% of the fund (RSPT has only 19.5% in the top 10).

Long-term comparisons are not favorable for RSPT. Short-term comparisons have improved slightly, with RSPT now trading about 8% below QQQ from its 2022 low.

What I really want to see is how it performs during big modifications. Can diversification prevent large drawdowns?

During the decline in 2022, RSPT outperformed by less than 1%. In a sharp decline like in 2020, it actually fell more than its peers.

The bottom line is that RSPT is underperforming on the upside, and its dispersion simply means there is insufficient protection from drawdowns.

RSPT configuration

RSPT is a passively managed fund based on the S&P 500.^® Equal-weighted Information Technology Index (Index). Constituents for inclusion in the index are selected based on GICS.

According to the fund page, this is how this translates into an RSPT allocation.

RSPT holds 67 shares. NVDA is the largest holding with a weight of 2.48% and AAPL is the smallest holding with a weight of 1.19%. How many technology ETFs are there that have a minimum holding of AAPL? Probably none, but RSPT is quite unique.

In addition to being evenly weighted in equities, the portfolio is also approximately equally weighted between large-cap and mid-cap sectors.

This may explain the larger drawdown due to the sharp correction in 2020 compared to QQQ and XLK. This is because mid-cap stocks generally have higher volatility.

As an aside, RSPT's closest rival is probably Direxion NASDAQ-100® Equal Weighted Index Shares ETF (QQQE) is also equally weighted. We discount it because only 40% is exposed to technology.

Why hold RSPT?

RSPT is a large fund with $3.94 billion in assets under management and a generous average daily trading volume of $18.77 million. The expense ratio of 0.40% is high compared to the likes of XLK and QQQ, but I think this is justified considering its unique composition.

Given the poor performance during rallies and adjustments, I wonder what the appeal is. I like the exposure to the technology field and I like the variety, but if this comes at the expense of performance, I'm not sold on it.

Perhaps its main appeal is less exposure to “hot” stocks like Nvidia, which have struggled to grow. We all know how much the “Magnificent 7” has risen recently, but if you're concerned about overvaluation and want to avoid heavy exposure to NVDA, AAPL, and MSFT, RSPT is attractive. According to the fund's page, the overall P/E ratio is 21.10x, which is a reasonable level for the technology sector. However, for some reason this is from March 31, 2023, and RSPT has risen nearly 40% since then.

The S&P data for the underlying index is much more up-to-date, so it's less appealing.

risk

The most obvious risk is that RSPT continues to underperform technology ETFs that use a float-adjusted market capitalization methodology.

With one obvious benefit comes another risk. If a company like NVDA starts to fall significantly, the entire technology sector could fall along with it. One might think that RSPT might be isolated due to its low exposure, but a sector-wide correction, including mid-caps, could still have a very negative impact.

conclusion

RSPT offers unique equal-weighted exposure to the technology sector, diversified across 67 large- and mid-cap stocks. Most metrics are good except for the performance that really matters. It is delayed compared to the XLK Rally. And it drops even further during major corrections.

If you absolutely must avoid large exposure to the top three weights of most technology ETFs (NVDA, MSFT, AAPL), RSPT is an option, but it is likely to result in poor performance. Masu.