People are nervous that ETFs like IVV, SPY, and VOO are too oriented towards the mega tech companies that have nearly doubled in the last few years.
How about switching to RSP, which is equal weight S&P 500? Every company in the S&P 500 but in an equal investment. A true indicator of the success of the 500 largest companies in America.
Invesco | Product Detail | Invesco S&P 500® Equal Weight ETF
You can search this and there have been studies. RSP price slightly outperformed for a 20-year time frame (don’t remember the exact time studied). It depends on the time frame chosen. With dividends included and reinvested, RSP significantly outperformed. The studies didn’t include the last couple of years, so it’s probably a little different now.
It is a solution in search of a problem. We already have small/value investing to get better diversification and better expected returns. Equally weighting the top 500 stocks is a nifty but arbitrary strategy. It works by accident, and it’s more expensive (and much less tax efficient) than tilting with the better options like VTV, which are already available.
Bad index. Not a true indicator as the companies that are doing exceptionally well have to get sold to rebalance. Even a total world market ETF (VT) has outperformed. (Not to mention VT is cheaper to own.)
@Quincy
Rebalancing is a good thing, not a bad thing.
https://www.bogleheads.org/wiki/Rebalancing
You’re taking stock that has outperformed and are purchasing stock that has underperformed. That’s the definition of buy low, sell high.
It’s not the worst idea. It’s basically a value tilt and mid-cap tilt in disguise because when a company outperforms, that gets rebalanced out. Cap-weight lets your winners run.
If I were going to use it, I’d probably just do so temporarily. If I believed the Mag 7 have had their run and now it’s time for the other 493 to catch up, equal-weight is a way to capitalize on that.
What are you trying to accomplish with equal weight?
I’m not convinced it’s bad, but it’s fairly new. Backtest shows it rises faster but falls faster than SPY, which is what I would expect since it’s rebalancing its portfolio similar to how a bond mix might:
https://testfol.io/?s=b3uAjOR9Zak
I feel like there should be a benefit to holding RSP, but I haven’t thought very deeply about it.
If you like lower returns, higher fees, and paying more taxes, then that would be for you.
Cory said:
If you like lower returns, higher fees, and paying more taxes, then that would be for you.
RSP hasn’t paid a cap gains distribution since 2003 and has a dividend yield that’s only 15bps higher than IVV/VOO.
RSP has a very big correlation with mid (not large) caps. Also, RSP has the drawback of higher turnover expenses. So maybe it makes sense to get MCW of mid-caps instead of equal-weighted large caps.