Making its debut on 11/01/2006, smart beta exchange traded fund Invesco S&P 500 Equal Weight Energy ETF (RYE) provides investors 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.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

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.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

The fund is managed by Invesco. RYE has been able to amass assets over $628.22 million, making it one of the average sized ETFs in the Energy ETFs. Before fees and expenses, RYE seeks to match the performance of the S&P 500 Equal Weight Energy Index.

The S&P 500 Equal Weight Energy Plus Index equally weights stocks in 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.

With one of the cheaper products in the space, this ETF has annual operating expenses of 0.40%.

It's 12-month trailing dividend yield comes in at 2.62%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

For RYE, it has heaviest allocation in the Energy sector --about 100% of the portfolio.

When you look at individual holdings, Occidental Petroleum Corp (OXY) accounts for about 5.74% of the fund's total assets, followed by Williams Cos Inc/the (WMB) and Oneok Inc (OKE).

The top 10 holdings account for about 49.35% of total assets under management.

Performance and Risk

The ETF has added roughly 62% and is up about 68.23% so far this year and in the past one year (as of 11/23/2022), respectively. RYE has traded between $45.15 and $81.27 during this last 52-week period.

The fund has a beta of 1.64 and standard deviation of 49.22% for the trailing three-year period, which makes RYE a high risk choice in this particular space. With about 23 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco S&P 500 Equal Weight Energy ETF is an excellent option for investors seeking to outperform the Energy ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

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 $9.10 billion in assets, Energy Select Sector SPDR ETF has $44.53 billion. VDE has an expense ratio of 0.10% and XLE charges 0.10%.

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.

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 Energy ETF (RYE): ETF Research Reports

Williams Companies, Inc. The (WMB) : Free Stock Analysis Report

Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report

ONEOK, Inc. (OKE) : Free Stock Analysis Report

Energy Select Sector SPDR ETF (XLE): ETF Research Reports

Vanguard Energy ETF (VDE): ETF Research Reports

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