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Stumbling Megacap Stocks Send Record $1B to Equal-Weight ETF

More than $1 billion has flooded into the $35 billion Invesco S&P 500 Equal Weight ETF (ticker RSP).

(Bloomberg) -- After a month that saw the world’s biggest companies dominate the stock market, investors are piling back into an exchange-traded fund that treats every stock the same.

So far this week, more than $1 billion has flooded into the $35 billion Invesco S&P 500 Equal Weight ETF (ticker RSP). That’s on track to be the biggest weekly inflow in RSP’s 20-year history, data compiled by Bloomberg show.

As cracks start to surface in a dizzying tech rally that’s been fueled by the buzz around artificial intelligence, appetite is building for RSP. Unlike the broad benchmark, RSP tracks the S&P 500 index that gives a company like Advance Auto Parts Inc. the same weighting as Apple Inc. 

Citigroup strategists warned this week that the AI sugar rush is set to fade, while Morgan Stanley sees a coming corporate profit drop that will cut short the S&P 500 Index’s climb. That sentiment is shared by money managers, who are likely rotating out of the biggest stocks into other corners of the market, according to John Hancock Investment Management.

“There’s a concern that’s developed that this breadth is extremely narrow and you’ve seen a handful of stocks dominating. So investors are aware of that and they’re potentially diversifying away from it,” Emily Roland, co-chief investment strategist at John Hancock, said in an interview at Bloomberg’s New York office. “Maybe AI was kind of the hot-dot there and I think it can still do well but maybe investors are now shifting their focus to other areas.”

After lagging the S&P 500 for four straight months through May, RSP has trounced the benchmark by more than one percentage point so far in June as the stock market rally broadens outside of big tech. The sector’s strength will likely spill over into other areas of the market, Bank of America Corp.’s Savita Subramanian wrote in a client note Thursday. 

Money has been pouring into RSP in anticipation of the dynamic. The ETF is poised for its fourth consecutive week of inflows, bringing its total haul over the past month to $1.6 billion, data compiled by Bloomberg show. 

To Bloomberg Intelligence’s Eric Balchunas, the demand for RSP shows investors are becoming increasingly cautious of the stock market’s narrow rally. Overall flows into US equity ETFs total just $78.3 billion so far this year, outpaced by the $85.7 billion sent to fixed-income ETFs. 

“Flows into ETFs show people want equity exposure but are still doubtful about the megacap tech rally,” Balchunas, BI senior ETF analyst, said. “People just aren’t chasing returns with reckless abandon the way they once did.”

TAGS: Equities
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