Smart Beta Funds: Guggenheim S&P 500 Equal Weight (RSP)
Perhaps a simple smart beta strategy is best, and nothing could be simpler than the Guggenheim S&P 500 Equal Weight (RSP). RSP basically takes all the constituents of the benchmark index and equally divides them up to create its portfolio.
The reason behind this is pretty simple, too.
Most indices are created by weighting stocks according to their total stock market value, or market capitalization. So in the case of the S&P 500, Apple (AAPL) — with its $480 billion market cap — gets more weighting than $13 billion Range Resources (RRC). As a result, Apple can “move” the index much more than the smaller constituent RRC.
By equally weighting the index, RSP allows for these smaller stocks to shine. That focus on sharing the load has worked well for RSP — in the past 10 years, RSP has posted annual returns of 9.18% per year, vs. just 7.61% for the venerable S&P 500. Doesn’t sound like much, but over time, those percentage points add up.
Meanwhile, expenses for the $7 billion fund are pretty cheap as far as smart beta funds go. RSP only charges 0.4%, or $40 annually per every $10,000 invested.