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An S&P 500 index fund is a good way to make a broad investment in U.S. stocks at low cost. But it is also a more concentrated approach than some investors realize, because the index is weighted by market capitalization. Another broad approach you might consider is to make use of an equal-weighed index fund.
The $34 billion Invesco S&P 500 Equal Weight ETF
RSP,
is now 20 years old — it was launched on April 24, 2003. Nick Kalivas discussed the fund’s performance and its lower-risk approach in an interview.
Before digging into a performance comparison, we need to point out how concentrated the benchmark S&P 500
SPX,
can be. The SPDR S&P 500 ETF Trust
SPY,
which has $378 billion in assets, seeks to mirror the index’s performance by holding the same stocks in the same proportions with low expenses. It was 27% concentrated in its largest 10 holdings as of April 24:
| Company | Ticker | % of SPY Portfolio |
| Apple Inc. |
AAPL, |
7.11% |
| Microsoft Corp. |
MSFT, |
6.07% |
| Amazon.com Inc. |
AMZN, |
2.74% |
| Nvidia Corp. |
NVDA, |
1.92% |
| Alphabet Inc. Class A |
GOOGL, |
1.83% |
| Berkshire Hathaway Inc. Class B |
BRK.B, |
1.70% |
| Alphabet Inc. Class C |
GOOG, |
1.60% |
| Exxon Mobil Corp. |
XOM, |
1.41% |
| Meta Platforms Inc. Class A |
META, |
1.37% |
| UnitedHealth Group Inc. |
UNH, |
1.32% |
| Source: State Street Corp. | ||
A cap-weighted index with 500 stocks might have more concentration risk than you might have expected. This can help and it can also hurt. According to Kalivas, the index was 31.5% concentrated in its largest 10 components at the end of 2021, before SPY fell 18.2% in 2022. RSP fared better last year, with an 11.6% decline. (All returns in this article include reinvested dividends.)
So far this year, the index’s concentration has helped its performance, Kalivas said, with 10 stocks accounting for 90% of the S&P 500’s 7.5% return during the first quarter. “It was a concentrated megacap rally,” he said. This year through April 24, SPY is up 8.3%, while RSP is up 3.3%.
All of the following performance comparisons are net of expenses, which currently are 0.20% of assets annually for RSP and 0.09% of assets for SPY. Here are one-year returns and annual averages for longer periods through April 24, as calculated by FactSet:
| ETF | Total return – 1 year | Average return – 3 Years | Average return – 5 Years | Average return – 10 Years | Average return – 15 Years | Average return – 20 Years |
|
Invesco S&P 500 Equal Weight ETF RSP, |
-2.9% | 18.6% | 9.9% | 11.1% | 9.9% | 10.7% |
|
SPDR S&P 500 ETF Trust SPY, |
-1.5% | 15.2% | 11.3% | 12.1% | 9.7% | 9.9% |
| Source: FactSet | ||||||
FactSet’s price data for RSP goes back to April 30, 2003, so the figure in the 20-year column for the fund is from that date — nearly 20 years.
Click the tickers for more about any ETF, index or company listed in this article.
Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.
RSP has outperformed SPY for three years, while SPY has come out ahead for the five and 10-year periods that encompassed the bull market that was partially driven by low interest rates. RSP has outperformed SPY for the 15-year and 20-year periods.
Here’s a 20-year chart comparing the two approaches. Again, this is for the full 20 years for SPY through April 24, and nearly 20 years for RSP, starting April 30, 2003:
FactSet
“What you will find, when you look over time, is that the smaller names in the S&P 500 have tended to outperform the larger ones,” Kalivas said. With RSP’s quarterly rebalancing to an equal-weight allocation to the S&P 500, “there is a bit of a value tilt,” he added.
Don’t miss: 8 value stocks that look like bargains for long-term investors
Read the full article here