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

The Invesco S&P 500 Equal Weight Materials ETF (RTM) made its debut on 11/01/2006, and is a smart beta exchange traded fund that provides broad exposure to the Materials ETFs category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader 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.

If you’re the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

The fund is sponsored by Invesco. It has amassed assets over $377.49 million, making it one of the average sized ETFs in the Materials ETFs. RTM, before fees and expenses, seeks to match the performance of the S&P 500 Equal Weight Materials Index.

The S&P 500 Equal Weight Materials Index equally weights stocks in the materials sector of the S&P 500 Index.

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

Operating expenses on an annual basis are 0.40% for this ETF, which makes it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 1.85%.

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.

This ETF has heaviest allocation in the Materials sector – about 100% of the portfolio.

When you look at individual holdings, Cf Industries Holdings Inc (CF) accounts for about 4.26% of the fund’s total assets, followed by Avery Dennison Corp (AVY) and Nucor Corp (NUE).

The top 10 holdings account for about 40.58% of total assets under management.

Performance and Risk

So far this year, RTM has lost about -3.73%, and is down about -2.66% in the last one year (as of 11/24/2022). During this past 52-week period, the fund has traded between $141.04 and $190.46.

The fund has a beta of 1.07 and standard deviation of 29.85% for the trailing three-year period, which makes RTM a medium risk choice in this particular space. With about 29 holdings, it has more concentrated exposure than peers.

Alternatives

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

Materials Select Sector SPDR ETF (XLB) tracks Materials Select Sector Index and the FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR) tracks Morningstar Global Upstream Natural Resources Index. Materials Select Sector SPDR ETF has $5.65 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $7.34 billion. XLB has an expense ratio of 0.10% and GUNR charges 0.46%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Materials 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 Materials ETF (RTM): ETF Research Reports

Nucor Corporation (NUE) : Free Stock Analysis Report

Avery Dennison Corporation (AVY) : Free Stock Analysis Report

CF Industries Holdings, Inc. (CF) : Free Stock Analysis Report

Materials Select Sector SPDR ETF (XLB): ETF Research Reports

FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR): ETF Research Reports

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