The Invesco S&P 500 Equal Weight Energy ETF (RYE) made its debut on 11/01/2006, and is a smart beta exchange traded fund that provides broad exposure to the Energy ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
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.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
Managed by Invesco, RYE has amassed assets over $288.74 million, making it one of the average sized ETFs in the Energy ETFs. This particular fund seeks to match the performance of the S&P 500 Equal Weight Energy Index before fees and expenses.
The S&P 500 Equal Weight Energy Index is an unmanaged equal weighted version of the S&P 500 Energy Index that consists of the common stocks of the following industries: oil and gas exploration, production, marketing, refining and/or transportation and energy equipment and services industries that comprise the Energy sector of the S&P 500 Index.
Cost & Other Expenses
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF’s expense ratio.
Annual operating expenses for RYE are 0.40%, which makes it one of the cheaper products in the space.
It has a 12-month trailing dividend yield of 1.88%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund’s holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 100% of the portfolio, the fund has heaviest allocation to the Energy sector.
Looking at individual holdings, Marathon Oil Corp (MRO) accounts for about 5.47% of total assets, followed by Diamondback Energy Inc (FANG) and Devon Energy Corp (DVN).
The top 10 holdings account for about 50.34% of total assets under management.
Performance and Risk
The ETF return is roughly 67.75% and it’s up approximately 106.72% so far this year and in the past one year (as of 11/10/2021), respectively. RYE has traded between $24.79 and $51.87 during this last 52-week period.
RYE has a beta of 2.01 and standard deviation of 46.59% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 24 holdings, it has more concentrated exposure than peers.
Invesco S&P 500 Equal Weight Energy ETF is a reasonable option for investors seeking to outperform the Energy ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Vanguard Energy ETF (VDE) tracks MSCI US Investable Market Energy 25/50 Index and the Energy Select Sector SPDR ETF (XLE) tracks Energy Select Sector Index. Vanguard Energy ETF has $5.85 billion in assets, Energy Select Sector SPDR ETF has $28.18 billion. VDE has an expense ratio of 0.10% and XLE 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 Energy ETFs.