Investors wanting exposure to the S&P 500 without the concentration risk should consider this ETF.
After 2022 saw many major U.S. stock market indexes decline significantly, the past year-and-a-half has seen a much-needed bounceback. Unfortunately, the sentiment around the U.S. stock market and economy has changed over the past month or so, with recession fear talk seemingly popping up with each passing day.
Whether these recession fears are warranted remains to be seen, but the best thing you can do as an investor is to be as prepared as possible for what may come. Exchange-traded funds (ETFs) are good investment options at any time, but they can be especially useful during times of uncertainty because they reduce risks.
An could be a staple in almost anybody's portfolio, but people wanting to hedge a little against possible future events should consider the Invesco S&P 500 Equal Weight ETF (RSP 0.90%).
The same companies, but less dependence
This ETF mirrors the S&P 500, an index that tracks the largest 500 American companies on the stock market. In most cases, an S&P 500 ETF is market-cap-weighted, meaning larger companies account for more of the ETF than smaller companies. If you invest in one, more of the money will be put into companies like Microsoft and Apple than Etsy and Southwest Airlines.
However, since this ETF is equally weighted, all companies account for roughly the same amount. For perspective, here are its top 10 holdings, compared to SPDR S&P 500 Trust ETF (SPY 0.45%).
| Invesco S&P 500 Equal Weight ETF | SPDR S&P 500 Trust ETF |
|---|
| Mohawk Industries (0.27%) | Microsoft (7.25%) |
| Charter Communications (0.26%) | Nvidia (6.63%) |
| CBRE Group (0.25%) | Apple (6.62%) |
| D.R. Horton (0.24%) | Amazon (3.86%) |
| 3M (0.24%) | Meta Platforms (2.41%) |
| Tyler Technologies (0.24%) | Alphabet Class A (2.33%) |
| Iron Mountain (0.24%) | Alphabet Class C (1.96%) |
| Lockheed Martin (0.23%) | Berkshire Hathaway (1.61%) |
| Bio-Rad Laboratories (0.23%) | Eli Lilly (1.57%) |
| American Tower (0.23%) | Broadcom (1.53%) |
Data source: Invesco.
There's a noticeable difference between the two, although they both mirror the S&P 500.
A history of outperformance during rocky times
The concentration of a standard S&P 500 ETF can be great when the companies and sectors leading the way (in this case, tech) are flourishing, as has been the case in recent times. However, the same companies and sectors responsible for its growth can also be responsible for its decline.
Investing in an equal-weight S&P 500 ETF can be the best of both worlds. On one hand, you're still investing in the S&P 500, which many consider to be an investment in the U.S. economy. On the other, you're not as reliant on too few companies or the tech sector's success to drive the ETF's gains.
Despite the success of huge tech companies and the tech sector over the past couple of decades, the equal-weight approach has proven to be more efficient. Here's how the equal-weight and standard S&P 500 ETFs have performed since the Invesco S&P 500 Equal Weight ETF's April 2003 inception.
RSP data by YCharts
You never want to use past results to predict future performance, but there have been numerous down or recovery periods when investing in the equal-weight ETF proved to be a better choice than a standard S&P 500 ETF.
For example, when the S&P 500 declined by over 19% in 2022, the equal-weight S&P 500 "only" declined by just over 13%. After the market crashed in March 2020 because of the COVID-19 pandemic, the S&P 500 gained around 52% from April to December, while the equal-weight S&P 500 gained close to 60%.
Therefore, this ETF is a great option if you want exposure to the S&P 500 without worrying about the correction of megacap tech stocks.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stefon Walters has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, American Tower, Apple, Berkshire Hathaway, Etsy, Iron Mountain, Meta Platforms, Microsoft, Nvidia, and Tyler Technologies. The Motley Fool recommends 3M, Broadcom, Lockheed Martin, and Southwest Airlines and recommends the following options: long January 2026 $180 calls on American Tower, long January 2026 $395 calls on Microsoft, short January 2026 $185 calls on American Tower, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
FAQs
Whether these recession fears are warranted remains to be seen, but the best thing you can do as an investor is to be as prepared as possible for what may come. Exchange-traded funds (ETFs) are good investment options at any time, but they can be especially useful during times of uncertainty because they reduce risks.
What stock should I buy before a recession? ›
Recession stocks are defensive stocks that can sustain growth or limit losses during an economic downturn because their products or services are always in demand. The best recession stocks include consumer staples, utilities and healthcare stocks.
What is the best ETF to buy and hold? ›
7 Best Long-Term ETFs to Buy and Hold
| Long-term ETF | Expense Ratio | Assets Under Management* |
|---|
| Vanguard Information Technology ETF (VGT) | 0.09% | $74.2 billion |
| Schwab U.S. Small-Cap ETF (SCHA) | 0.04% | $18 billion |
| Vanguard Total International Stock ETF (VXUS) | 0.08% | $74 billion |
| iShares Core U.S. Aggregate Bond ETF (AGG) | 0.03% | $116 billion |
3 more rowsAug 27, 2024
Avoid Growth Stocks During a Recession
“Growth stocks, especially profitless companies that are tied to high growth prospects, do worse during recessions,” Nakadi says. Instead, consider more income-producing investments and dividend-paying stocks.
Are ETFs safe if the stock market crashes? ›
Market risk
The single biggest risk in ETFs is market risk. Like a mutual fund or a closed-end fund, ETFs are only an investment vehicle—a wrapper for their underlying investment. So if you buy an S&P 500 ETF and the S&P 500 goes down 50%, nothing about how cheap, tax efficient, or transparent an ETF is will help you.
Should I wait to invest in ETFs? ›
If you wait to buy an ETF until you are sure it will pay off for you, you'll probably pay a higher price. You are better off to buy sooner—when you are “pretty sure,” rather than “certain.” Learning how to know when to buy an etf at the right time is key.
What stocks get hit hardest in a recession? ›
Equity Sectors
On the negative side, energy and infrastructure stocks have been the hardest-hit in recent recessions. Companies in these sectors are acutely sensitive to swings in demand. Financials stocks also can suffer during recessions because of a rising default rate and shrinking net interest margins.
Where is the safest place to put your money during a recession? ›
Treasury Bonds
Treasurys, says Collins, are similar to government and corporate bonds, as they are backed by the full faith and credit of the U.S. government. They are typically seen as safe investments during a recession.
Who makes money during a recession? ›
Companies in the business of providing tools and materials for home improvement, maintenance, and repair projects are likely to see stable or even increasing demand during a recession. So do many appliance repair service people. New home builders, though, do not get in on the action.
What is the safest ETF to buy today? ›
7 Best ETFs to Buy Now
| ETF | Assets Under Management | Expense Ratio |
|---|
| Global X Defense Tech ETF (SHLD) | $470 million | 0.50% |
| iShares MSCI Global Gold Miners ETF (RING) | $566 million | 0.39% |
| iShares U.S. Insurance ETF (IAK) | $610 million | 0.39% |
| Roundhill Magnificent Seven ETF (MAGS) | $668 million | 0.29% |
3 more rowsSep 3, 2024
The 10 Best-Performing ETFs:
- VanEck Crypto & Blockchain Innovators UCITS ETF (DAPP)
- iShares Blockchain Technology UCITS ETF (BLKC)
- Invesco CoinShares Global Blockchain UCITS ETF (BCHN)
- Amundi MSCI Semiconductors ESG Screened UCITS ETF (CHIP)
- VanEck Defense ETF (DFNS)
- Amundi MSCI China Tech ESG Screened UCITS ETF (CC1)
List of 15 Best ETFs in India
- Nippon India ETF PSU Bank BeES. 207.43%
- Kotak Nifty PSU Bank ETF. 207.20%
- BHARAT 22 ETF. 189.75%
- ICICI Prudential Nifty Midcap 150 Etf. 101.04%
- Mirae Asset NYSE FANG+ ETF. 73.81%
- HDFC Nifty50 Value 20 ETF. 71.93%
- Nippon India ETF Nifty 50 BeES. 54.33%
- Invesco India Gold ETF. 50.43%
Most stocks and high-yield bonds tend to lose value in a recession, while lower-risk assets—such as gold and U.S. Treasuries—tend to appreciate.
What is the best asset during a recession? ›
Cash, large-cap stocks and gold can be good investments during a recession. Stocks with sensitive prices and cryptocurrencies can be unstable during a recession.
Who gets hit hardest in a recession? ›
Industries affected most include retail, restaurants, travel/tourism, leisure/hospitality, service purveyors, real estate, & manufacturing/warehouse.
What investments are good in a recession? ›
Sectors that track defensive stocks, such as health care, consumer staples and utilities may hold up well in a recession, even when the broad market is trading lower.
Is it smart to invest during a recession? ›
Healthy large cap stocks also tend to hold up relatively well during downturns. Investing in broad funds can help reduce recession risk through diversification. Bonds and dividend stocks can provide income to cushion investors against downturns.
What ETF did well in 2008? ›
The strongest ETF for 2008 was the ProShares UltraShort Semiconductor (SSG), which ended the year up 110.9%. The other top short ETFs this year include: ProShares UltraShort Technology (REW), 95.3% ProShares UltraShort Russell MidCap Growth (SDK), 94.4%
What ETFs go up when the market goes down? ›
Inverse ETFs are exchange-traded funds that use derivative contracts to deliver positive returns from a decline in the value of an underlying asset or market index. Inverse ETFs may also be referred to as short ETFs or bear ETFs, thanks to a focus on profiting from negative returns.
