VIDEO: ETF of the Week: RSPA

Chuck Jaffe: One fund, on point for today. The expert to talk about it. This is the ETF of the Week.

Welcome to the ETF of the Week, where we examine new, newsworthy, unique, and intriguing exchange traded funds with Todd Rosenbluth, the head of research at VettaFi. And at VettaFi.com, you’ll find all the tools and research that you need to make yourself a savvier, smarter investor in ETFs. Todd, great to chat with you again!

Todd Rosenbluth: It’s great to be with you, Chuck!

Chuck Jaffe: Your ETF of the Week is…

Todd Rosenbluth: The Invesco S&P 500 Equal Weight Income Advantage ETF (RSPA).

Chuck Jaffe: The RSPA. It’s the Invesco S&P 500 Equal Weight Income Advantage ETF. Now, this is basically an S&P 500 fund with an “income advantage,” which is another way of saying an options overlay. Explain how this fund works and why it’s the ETF of the Week.

Todd Rosenbluth: So we’ve talked about the need and the interest for the broadening of the equity markets, and we think that that’s likely to happen. In 2025, with Trump’s election, the Republican administration, we’re going to see more winners, and more large-cap companies participate outside of the Magnificent Seven. We’ve started to see that recently. We think that will continue.

So that’s the equal-weight portion of this. You’re getting the large-cap companies that are in the S&P 500. But you’re spreading their risk around. And we can come a little bit more into that. And then yes, there’s the options overlay that’s tied to this. You’re getting the income benefits. So, a higher dividend to higher income through the options aspect.

Invesco has a long history of running options strategies outside of the ETF wrapper. They’re now doing it inside the ETF wrapper. They’ve been doing this for a few months. And we’re excited about this ETF, and I know we’ll probably have time to come back to this. But why now? It’s also free right now. There is a fee waiver in place till the end of 2024, which makes the expense ratio zero, which is a great gift as we head into the holiday season.

Chuck Jaffe: The expense ratio without the waiver would be …

Todd Rosenbluth: It’ll be 29 basis points. So that’s relatively reasonable for a options overlay strategy. Those tend to have a higher fee because of the effort to run the options efforts and process. So this is currently a free ETF, even if people are listening to this or considering this in January 2025, this is still a good ETF to be having under consideration.

Chuck Jaffe: Where does this fit in a portfolio? Because it’s about deriving income. Yet, you’re doing it with the equity portion or an equity-based strategy. So is this replacing your standard growth and income fund, or is this replacing your higher-yielding bond funds?

Todd Rosenbluth: So like other ETFs that I think we’ve talked about, there are a number of use cases. So if you own the S&P 500 on an equal-weight basis, and the Invesco offers that ETF. The ticker is RSP. This can be a higher-income-oriented version. I’m not saying you should sell one and buy the other. You could complement your existing equal-weighted large-cap core exposure and get higher income and reduce some of the volatility that you might find within your portfolio, because an equal-weighted strategy is going to be a little bit riskier than a more mega-cap-weighted approach.

We are seeing, given that interest rates have been coming down, the Fed has cut interest rates a couple of times. They might do so again before the end of the year. That many advisors investors are looking for income and instead of using fixed income, you can get the income, and also the stability of income, from this Invesco ETF that’s yielding roughly 9%, and is going to be consistent, largely consistent, we think, around that 9% yield. So, high income, but in an equity exposure.

Chuck Jaffe: Yeah, we kind of buried the lead there: 9% yield should get most people pretty excited about almost any investment. And you’re not going up the junk scale or doing anything goofy to get it.

At the same time, this fund is brand new. Now, normally with new funds, I ask you about viability, but that’s not an issue here.

This fund already has over a quarter of $1 billion in it, and it’s only been around a short time. But this strategy, I mean, you just said something that if people picked up on it, they’d be filing in super fast. And that’s not the “hey, it’s free.” It’s the 9% yield that you think is going to hold up in all conditions.

Well, this isn’t tested. How do we know that’s going to work if we get into a market that gets hairy?

Todd Rosenbluth: So again, we don’t know for sure because we don’t have the track record for this ETF. So if you’re buying this for income, you want to be mindful and be aware of this. This is not a bond ETF. This doesn’t have the same interest rate payments, and then likely guarantee unless of default or credit downgrade.

This is equity exposure, with the benefits of an option overlay. So 9% is not too good to be true. But you certainly want to be watching and making sure that the income you think you’re getting, you actually are getting the same way. You want to be mindful that this is along the S&P 500 on an equal-weight strategy.

It will likely do better because of that options overlay than the traditional version that’s just equities. It’ll hold up better, we think. But of course, it will still go down in value. And it still owns Apple and Microsoft and Tesla and Nvidia and other large-cap companies, just in a diversified manner.

Chuck Jaffe: This has an unusual structure. I asked the role it plays in a portfolio, but how much of a portfolio are you willing to let this be? Because you could hear a lot of people say, “Wait. Hold it. I love an equal-weighted fund. I love extra income. And I like free or low cost. I’ll use this and replace something big in my portfolio.”

Is it that good of a fund? Is it that willing to be proven, or are you willing to let it be a big chunk? Or is this a case of, mix this with your RSP that doesn’t have the options overlay?

Todd Rosenbluth: I think this is best used right now as a complement to an existing equity and fixed income strategy, and it can straddle the middle area. You get  income benefits. You actually probably get more income through this RSPA than you are from your Treasury or your corporate bond ETF or even your high yield ETF that’s not yielding 9%.

So you’re going to get higher income. You’re going to limit some of the upside limits, some of the downside because of the options aspect of it. But it can serve as a great complement to an existing strategy. I think we might have even talked about RSP, the equal-weight S&P 500, that that doesn’t have an income combination behind it.

But I just want to remind folks: What you’re getting are the same roughly 500 stocks — 503, I believe, S&P 500 stocks tied to 500 companies. But instead of having a concentration in Apple, Microsoft, Nvidia, Tesla, what have you, you are owning roughly 0.20% of each of those individual stocks, which means you have more exposure on a relative basis to those more moderately sized S&P 500 companies and less exposure to to those heavyweights.

So if we see industrials, or we see financials, or we see healthcare do relatively well, then this ETF, RSPA, is going to benefit from that, because it owns exposure to those companies as opposed to being heavily concentrated in technology and communication services and consumer discretionary sectors.

Chuck Jaffe: This fund is, as we’ve said, tied to the S&P 500 Equal Weight Fund. But do you expect, since this fund is relatively new, that we’re going to see an income-advantage-type share class offered by a) multiple fund companies; and b) on pretty much every index that’s out there?

Todd Rosenbluth: Well, Invesco actually offers two other products that I may get the tickers wrong, so I’m not going to name-drop them, but they have one tied to the Nasdaq 100 and they have one tied to the MSCI EAFE. If we are seeing covered call or options-based strategies become more prevalent for good reason, there’s expertise in the asset management industry to run option strategies.

Investors are looking for income and equity exposure, but this is unique. This is the only S&P 500 equal-weight ETF that Invesco offers. They offer the underlying ETF, RSP. They offer RSPA, which is an income-enhanced version of that. And we think this is a good ETF to take a closer look at.

Chuck Jaffe: And that’s why it’s the ETF of the Week! It is RSPA, the Invesco S&P 500 Equal Weight Income Advantage ETF. Todd, great stuff. We’ll see you again next week.

Todd Rosenbluth: See you next week, Chuck.

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And I’m Chuck Jaffe, and I’d love it if you would check out my hour-long weekday podcast by going to MoneyLifeShow.com, or by searching for it wherever you find great podcasts. Now, if you’re searching for information on great exchange traded funds, look no further than VettaFi.com, where they’ve got all the tools you need to make yourself a better investor.

They’re on X at @Vetta_Fi. Todd Rosenbluth, their head of research, my guest. Well, he’s on X. He’s at @ToddRosenbluth. The ETF of the Week is here for you every Thursday. Next week it’ll be Wednesday because of the Thanksgiving holiday. But we will be here next week. We hope you will make sure that you join us by following along on your favorite podcast app so you don’t miss an episode.

We’ll have that episode for you next week, and I promise it won’t be a turkey! Until then, happy investing!

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