Is Equal-Weighting the S&P 500 Worth It? Here’s What the Data Says

The top-heavy nature of the SPDR S&P 500 ETF Trust (SPY) has become one of ETF investor’s biggest talking points. With a handful of mega-cap technology companies accounting for an increasingly large share of the index, many investors have started looking for ways to reduce concentration risk without abandoning the S&P 500 altogether. That’s helped fuel renewed interest in alternative indexing approaches. Low-volatility ETFs have seen a resurgence, dividend ETFs have regained popularity, and another strategy attracting attention is equal weighting.

The Invesco S&P 500 Equal Weight ETF (RSP) does exactly what its name suggests. Rather than allowing the largest companies to dominate the portfolio, every stock in the S&P 500 receives the same allocation of roughly 0.2%, with the portfolio rebalanced quarterly to restore those equal weights. On paper, the idea is compelling. You still own all 500 companies in the S&P 500, but without relying so heavily on a handful of mega-cap stocks to drive returns. There is certainly some truth to that benefit.

Equal weighting comes with trade-offs that often receive less attention. Over more than two decades, those trade-offs have generally resulted in lower returns, higher volatility, and higher costs than simply owning the traditional market-cap-weighted S&P 500.

What Equal-Weighting the S&P 500 Actually Does

RSP’s portfolio looks noticeably different from SPY despite owning the same underlying companies. The biggest differences appear at the sector level. Compared with the traditional S&P 500, RSP is overweight industrials by about 7%, real estate by 4%, utilities by 3.3%, materials by 3%, financials by 2.6%, healthcare by 2%, consumer staples by 1.8%, and energy by 0.4%. It is underweight consumer discretionary by 0.2%, communication services by 6.5%, and information technology by a substantial 18.4%.

Sector allocations are one of the biggest drivers of long-term returns. Although both ETFs own the same companies, their performance can differ meaningfully simply because equal weighting reduces exposure to the technology sector while increasing allocations to more traditional industries. Equal weighting also modestly changes the portfolio’s characteristics.

Because the largest companies no longer dominate the index, the average market capitalization falls. According to Invesco, RSP’s average holding has a market capitalization of approximately $138 billion compared with roughly $152 billion for SPY. Likewise, RSP trades at a forward price-to-earnings ratio of 21.07 versus 22.43 for SPY, giving it a slight value tilt.

This helps dispel one of the more common misconceptions surrounding equal weighting. While it technically introduces both size and value factor exposures, those tilts are fairly modest because the starting universe is already limited to the largest 500 companies in the United States. Equal weighting doesn’t suddenly transform the portfolio into a mid-cap or deep-value strategy.

How Has RSP Performed Versus SPY?

I looked at performance over the 23-year period from April 2003 through July 2026 using Tesfolio data. Over that period, SPY generated an annualized total return of 11.47%, producing a cumulative return of 1,145.58%. RSP trailed slightly, returning 11.25% annually for a cumulative return of 1,089.36%. Perhaps more surprising is what happened to risk.

Many investors assume equal weighting reduces portfolio risk by lowering concentration. In practice, RSP actually experienced higher annualized volatility over the sample period, 19.80% compared with 18.52% for SPY. As a result, its risk-adjusted returns were also weaker, producing a Sharpe ratio of 0.55 versus 0.59 for SPY.

This highlights one of the biggest weaknesses of equal weighting. Unlike market-cap weighting, which naturally increases exposure to companies creating the most value while gradually reducing exposure to declining businesses, equal weighting is fundamentally arbitrary. Every quarterly rebalance requires trimming recent winners and adding to laggards regardless of why those price movements occurred. As Peter Lynch famously put it, you’re effectively “trimming the flowers and watering the weeds.”

Within an ETF structure, the higher turnover isn’t nearly as problematic from a tax perspective thanks to the in-kind creation and redemption process that minimizes capital gains distributions. But the economic logic still deserves scrutiny. Then there are the costs. RSP charges a 0.20% expense ratio, roughly double SPY’s fee. That difference may appear small in any single year, but over decades it compounds against investors.

If owning an equal-weight portfolio helps you stay invested because you’re uncomfortable with today’s concentration in mega-cap technology stocks, that’s a perfectly reasonable justification. Behavioral advantages can be valuable. But there are better ways to diversify away from the traditional S&P 500 while remaining fully invested in equities. Equal weighting solves one problem, but in my view it introduces several others. Today, RSP feels more like an interesting historical indexing experiment than the best solution for modern portfolio construction.

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