S&P 500 ETF Market Cap or Equal Weighted

[Al18]

Seems most S&P 500 ETF and Index funds are market cap weighted, meaning the top 5 companies accounting for 20% of the fund. These are all technical companies (Apple, Microsoft, Alphabet, Amazon, Meta or Tesla). Even Vanguard’s Total Market Index has the same top 5 companies at 20%. For true diversification, it seems a better idea to use a equal weight S&P 500 fund such as Invesco’s RSP ETF? RSP has 27B in assets and a 0.20% expense ratio. How many have RSP in their portfolio?

 

[FLSUnFIRE]

I don't but about 40% of my invested assets are in small cap index and the rest VTSAX/S&P 500 with a pinch of international so the mega caps have a bit less of an influence.

 

[bloom2708]

Equal weight is saying that the collective holdings of the S&P 500 stocks is wrong.

If the weight changes, the index changes. You are always in line with the market.

If the collective is wrong (Meta), then a different stock will get more investment.

Equal weight is tilting away from the collective. Hard pass.

 

[SnowballCamper]

I did have RSP in the portfolio for almost a decade...roughly 2006-2015ish. I don't remember the exact performance but it it was good enough. The decision to sell had to do with buying a home and then paying off the mortgage.

I don't think equal weight says the S&P 500 is wrong. It's just another way to hold a lot of stocks, with more weight given to those companies that have more room for growth.

I currently have some SDOG which basically chases dividends within the S&P 500. Other than that it's all vanilla index funds.

 

[ERD50]

https://tinyurl.com/27ley5rr << back-test portfolio

Not much diff. RSP comes out a bit ahead, but also more std dev

Portfolio Initial Balance Final Balance CAGR Stdev
RSP-equal weight $100,000 $677,060 10.35% 16.94%

SPY ____________ $100,000 $565,825 9.34% 14.63%

VTI ____________ $100,000 $597,372 9.64% 15.14%

By the time you add ~ 20% bonds to smooth the std dev to match SPY, the delta is near zero.

 

[Al18]

ERD50,
Thanks for the analysis. $111,000 difference looks like a significant difference - I’ll take that!

 

[DrRoy]

I have some RSP.

 

[dixonge]

RSP is my portfolio. I have found it to be slightly less volatile, and I like knowing that having some big player tank doesn't affect it nearly as much.

 

[ERD50]

ERD50,
Thanks for the analysis. $111,000 difference looks like a significant difference - I’ll take that!

Yes, that's nice, but volatility adjusted, not so much. Apples-Apples.

When I look at the 10, 5 3 year time frames, it under-performs and has higher volatility. Bad combo.

Try this, set all the portfolios to a more typical 70/30 with BND. To get the std dev of RSP/BND down to SPY, you need to add enough BND that the overall performance trails the 70/30 SPY/BND.

RSP is my portfolio. I have found it to be slightly less volatile, and I like knowing that having some big player tank doesn't affect it nearly as much.

The only period that I see lower volatility is this past year. Every other time frame I looked at, RSP had higher volatility.

I can understand the concern of overweight of a few of the largest holdings, I'm just not convinced that RSP is much of a solution, overall.

-ERD50

 

[dixonge]

The only period that I see lower volatility is this past year. Every other time frame I looked at, RSP had higher volatility.

I can understand the concern of overweight of a few of the largest holdings, I'm just not convinced that RSP is much of a solution, overall.

-ERD50

There are other more esoteric reasons, like ... it seemed like a good idea at the time?

 

[audreyh1]

I prefer to hold some mid-cap and small-cap index in addition to total market index.

Probably doesn’t make that much difference in the long run.

 

[Al18]

I’m thinking of selling about 20% of my SP 500 market cap index fund and replacing it with RSP. Currently hold small cap and mid cap index funds along with some international.

 

[Jibjab]

I own RSP in lieu of SPY realizing it tilts a little more toward mid & small cap

 

[Lsbcal]

Seems most S&P 500 ETF and Index funds are market cap weighted, meaning the top 5 companies accounting for 20% of the fund. These are all technical companies (Apple, Microsoft, Alphabet, Amazon, Meta or Tesla). Even Vanguard’s Total Market Index has the same top 5 companies at 20%. For true diversification, it seems a better idea to use a equal weight S&P 500 fund such as Invesco’s RSP ETF? RSP has 27B in assets and a 0.20% expense ratio. How many have RSP in their portfolio?

I would focus on the uneven weighting of value and growth within the SP500. If you look at the Morningstar style box it is still very growth weighted and looks like this (see M* site under Portfolio style box):

Large Value = 18%
Large Blend = 34%
Large Growth = 32%

It was even more unbalanced at the start of this year and PE's for growth got a lot higher. Now I don't know where this is all going and what the right balance is. But value stocks are beating growth and have for several months. So I just yesterday took my SP500 and split it in SP500/Large Value. But then I am not dealing with tax consequences and am quite comfortable with making portfolio changes.

FWIW, regarding mid/small cap, I have 60% of equities in that. Specifically value and have held this for months now based on a measure of performance.

 

[ncbill]

I own RSP in lieu of SPY realizing it tilts a little more toward mid & small cap

ditto