June 27, 2026 · 14 min read
For most of the 2018-2024 era, market-cap-weighted indexing dominated as mega-cap tech crushed everything else. But 2025-2026 is telling a different story: RSP (equal-weight S&P 500) is beating SPY by a wide margin. Here is why, and whether the shift is sustainable.
Both ETFs track the S&P 500 index — the same 500 companies. The critical difference is how much weight each stock receives in the portfolio.
| Metric | RSP (Equal Weight) | SPY (Cap Weight) |
|---|---|---|
| Full Name | Invesco S&P 500 Equal Weight ETF | SPDR S&P 500 ETF Trust |
| Expense Ratio | 0.20% | 0.0945% |
| AUM | ~$72B | ~$590B |
| Number of Holdings | ~500 | ~504 |
| Weighting Method | Equal (~0.2% each) | Market-cap weighted |
| Top Stock Weight | ~0.2% (same as all) | ~7.2% (Apple) |
| Top 10 Stocks Weight | ~2% (by design) | ~35.6% |
| Rebalancing | Quarterly | Continuous (float-adjusted) |
| Turnover Rate | ~20%/year | ~5%/year |
| Dividend Yield | ~1.5% | ~1.3% |
| Inception Date | April 2003 | January 1993 |
| YTD 2026 Return | +12.0% | +8.0% |
| 1-Year Return | +16.5% | +12.8% |
| Avg. Market Cap (holdings) | ~$80B | ~$800B |
| Sector Tilt | Value, Industrials, Financials | Technology, Communication |
In a market-cap-weighted index like SPY, each stock's allocation is proportional to its market capitalization. Apple, at roughly $3.5 trillion, gets approximately 7.2% of SPY. A $20 billion company like Etsy gets about 0.04%. The top 10 companies in SPY represent approximately 35% of the entire fund — meaning the other 490 stocks combined are less influential than 10 mega-caps.
RSP takes a radically different approach: every stock in the S&P 500 gets approximately 0.2% of the portfolio (1/500th). Apple gets the same weight as Etsy. NVIDIA gets the same weight as a regional utility company. This is rebalanced quarterly — stocks that have risen are trimmed back to 0.2%, and stocks that have fallen are bought back up to 0.2%.
The practical implication: when mega-cap tech stocks rally hard, SPY wins. When the rest of the market catches up — or mega-caps falter — RSP wins. The question is always about market breadth.
After years of extreme mega-cap dominance (2018-2024), the market is undergoing a structural rotation. RSP is beating SPY in 2026 for four interconnected reasons:
The S&P 500 equal-weight index outperforming its cap-weight counterpart is the clearest signal of broadening market participation. In 2023, only ~25% of S&P 500 stocks beat the index — an extreme narrowing. By mid-2026, over 60% of S&P 500 stocks are beating the index. When most stocks participate in the rally, equal-weight naturally wins because it gives every stock the same importance.
The 'Magnificent 7' (AAPL, NVDA, MSFT, AMZN, META, GOOGL, TSLA) had a collective forward P/E above 35x by late 2024 — a level historically associated with subsequent underperformance. In 2025-2026, these mega-caps have cooled: still posting decent earnings but no longer accelerating at rates that justify extreme multiples. Capital is rotating into the other 493 stocks that had been neglected.
RSP structurally overweights mid-cap stocks relative to SPY. The average market cap of an RSP holding is ~$80B vs ~$800B for SPY. Mid-cap stocks (companies between $10B-$100B market cap) historically deliver higher long-term returns than large-caps but were severely left behind during the AI mega-cap mania of 2023-2024. The catch-up trade is now in full swing.
As the Federal Reserve has cut rates from 5.5% to approximately 4.0% through 2025-2026, rate-sensitive sectors like financials, industrials, and real estate are benefiting disproportionately. These sectors receive much higher weight in RSP than in SPY. Financials are ~13% of RSP but only ~13% of SPY on a cap-weight basis — however, the underlying companies receiving more equal allocation in RSP are the smaller banks and regional institutions that benefit most from the yield curve normalization.
Equal-weight and cap-weight strategies take turns outperforming depending on market conditions. Understanding these cycles is essential for setting expectations.
| Period | RSP Ann. Return | SPY Ann. Return | Winner | Context |
|---|---|---|---|---|
| 2000-2007 (Post Dot-Com) | +6.8% | +1.7% | RSP | Extreme mega-cap overvaluation collapsed; equal-weight's mid-cap tilt thrived |
| 2008 (Financial Crisis) | -39.7% | -36.8% | SPY | RSP's heavier financials weighting caused deeper drawdown |
| 2009-2014 (Recovery) | +20.1% | +17.4% | RSP | Broad recovery benefited smaller and mid-cap names disproportionately |
| 2015-2017 | +10.2% | +11.4% | SPY | FAANG dominance began to tilt returns toward mega-caps |
| 2018-2021 (Mega-Cap Run) | +14.8% | +18.5% | SPY | Magnificent 7 drove nearly all S&P 500 gains; RSP lagged significantly |
| 2022 (Bear Market) | -11.6% | -18.1% | RSP | Mega-cap tech sold off hardest; equal-weight's diversification helped |
| 2023 | +11.8% | +26.3% | SPY | The 'Magnificent 7' drove almost all of SPY's gains; RSP missed the rally |
| 2024 | +14.2% | +25% | SPY | AI mega-cap momentum continued; NVDA and broadcom surges lifted SPY |
| 2025 | +12.5% | +10.8% | RSP | Market breadth broadened; rotation out of mega-cap tech into mid-caps |
| 2026 YTD (Jan-Jun) | +12% | +8% | RSP | Equal-weight outperforming as mega-cap concentration unwinds |
Key pattern: RSP tends to outperform after periods of extreme concentration (post-2000 dot-com, post-2022 mega-cap mania). SPY tends to outperform when a small number of mega-cap stocks dominate market returns. The 2025-2026 rotation toward RSP follows the historical playbook of mean reversion after extreme narrowness.
The biggest risk in market-cap-weighted indexing is something most investors do not realize: you are making a massive concentrated bet on a handful of mega-cap stocks. As of mid-2026, SPY's top 10 holdings represent approximately 35.6% of the entire portfolio.
The top 3 stocks alone — Apple, NVIDIA, and Microsoft — account for approximately 20.5% of SPY. This means roughly 1 in 5 dollars invested in SPY is concentrated in just three technology companies. In RSP, those same three stocks would represent just 0.6% of the portfolio.
History shows that market leadership rotates. The top 10 stocks of the S&P 500 in 2000 (GE, Cisco, Intel, Microsoft, Exxon) severely underperformed over the next decade. When the current mega-caps inevitably slow down or rotate out of favor, SPY holders bear concentrated losses on 35%+ of their portfolio. RSP holders experience those same losses diluted across just 2% of their portfolio.
Beyond simple diversification, equal-weight indexing provides several structural advantages that are often overlooked:
Every quarter, RSP systematically sells stocks that have run up (selling high) and buys stocks that have declined (buying low). This is mechanical mean reversion — the same principle that value investors have used for decades, automated into the index methodology.
In SPY, technology accounts for ~30% of the index. In RSP, no sector exceeds ~15-16% because equal-weighting naturally limits sector concentration. You get more balanced exposure to industrials, financials, healthcare, and utilities — sectors that may lead in different economic environments.
By giving equal weight to all 500 stocks, RSP naturally tilts toward the 'average' S&P 500 company — which has a lower P/E ratio and higher dividend yield than the mega-cap-dominated SPY. This gives RSP a persistent value factor exposure without the label of a 'value fund.'
Many S&P 500 companies with $20B-$100B market caps are fast-growing businesses that get virtually no weight in SPY. In RSP, these companies get the same 0.2% allocation as Apple. Historically, mid-caps have delivered higher long-term returns than large-caps, and RSP captures this premium systematically.
Equal-weight indexing is not a free lunch. There are real costs and structural drawbacks that investors must understand before choosing RSP over SPY:
RSP costs roughly twice as much as SPY in annual fees. Over 30 years on a $100,000 investment growing at 10% annually, the fee difference costs approximately $12,000. This is not trivial and must be offset by RSP's structural advantages to be worth it.
Quarterly rebalancing forces RSP to sell and buy far more frequently than SPY. This generates higher trading costs inside the fund and can lead to wider bid-ask spreads during rebalancing periods (March, June, September, December).
Every rebalance that trims winning positions creates capital gains distributions. SPY, by contrast, is one of the most tax-efficient investment vehicles ever created because market-cap weighting requires almost no forced selling. In a taxable brokerage account, SPY has a meaningful structural advantage.
When a handful of stocks are driving the market (as in 2023's Magnificent 7 rally), RSP structurally underperforms because it keeps trimming the winners. If you believe AI-driven mega-cap dominance will continue, SPY is the better choice. RSP's contrarian rebalancing is a drag during strong momentum regimes.
SPY's ~$590B in AUM dwarfs RSP's ~$72B. While RSP is still highly liquid by any ETF standard, SPY offers tighter bid-ask spreads and deeper order books — advantages that matter most for institutional and active traders.
RSP is the most popular equal-weight S&P 500 ETF, but it is not the only option. Several other equal-weight funds offer variations on the theme:
Equal-weight version of the S&P 100 (largest mega-caps). Fewer holdings than RSP but still removes concentration risk.
Equal-weight Nasdaq-100. Reduces AAPL/MSFT/NVDA dominance while keeping tech sector exposure.
Equal-weight small-cap exposure. Highest risk/return potential but also highest volatility and turnover.
ESG-screened version of RSP. Removes ~10 stocks that fail ESG criteria while maintaining equal-weight methodology.
For investors who want equal-weight exposure beyond the S&P 500, QQQE is particularly interesting — it removes the extreme AAPL/MSFT/NVDA concentration from the Nasdaq-100 while keeping the tech-heavy sector allocation.
The RSP vs SPY decision is not binary — it depends on your investment horizon, account type, and market outlook. Here is a framework:
Many sophisticated investors hold both. A 50% RSP / 50% SPY allocation gives you roughly 18% in the top 10 stocks (vs 35% in pure SPY and 2% in pure RSP) — a balanced middle ground. A 70% SPY / 30% RSP blend reduces concentration risk while keeping a majority cap-weight tilt. There is no single correct answer — choose based on your conviction about market breadth and your account's tax characteristics.
One of the most important practical differences between RSP and SPY is sector exposure. Market-cap weighting creates massive technology overexposure; equal-weighting spreads risk more evenly.
Notice how Technology is 31% of SPY but only 14% of RSP — a massive difference. Conversely, Industrials, Utilities, and Real Estate get 2-3x more weight in RSP. This is why RSP performs differently in different economic environments: it is structurally more diversified across sectors.
A visual comparison of $10,000 invested in each ETF in 2016, with dividends reinvested.
Starting value of $10,000 in 2016. Approximate total returns including reinvested dividends. Past performance does not guarantee future results. SPY led for most of this period due to mega-cap tech dominance; RSP is closing the gap rapidly in 2025-2026.
SPY tracks the S&P 500 using market-cap weighting — larger companies get higher allocations. Apple at ~7% of SPY vs. ~0.2% in RSP. RSP tracks the same S&P 500 index but weights all ~500 stocks equally at ~0.2% each, rebalancing quarterly. This gives RSP a structural tilt toward mid-cap and value stocks relative to SPY.
RSP charges 0.20% vs SPY's 0.0945% because equal-weighting requires quarterly rebalancing — selling winners that have grown above target weight and buying laggards. This generates more trading costs and portfolio turnover (~20% annually vs ~5% for SPY). The higher operational complexity justifies the higher fee, though the gap has narrowed in recent years.
No. RSP is less tax-efficient due to its mandatory quarterly rebalancing. Each rebalance triggers capital gains distributions as winning positions are trimmed. SPY's market-cap weighting is naturally self-adjusting — stocks that grow simply get a larger weight with no forced selling. For taxable accounts, SPY has a meaningful advantage; in tax-advantaged accounts (IRA, 401k), this difference disappears.
Yes. Both RSP and SPY pay quarterly dividends. RSP's dividend yield is typically slightly higher than SPY's (~1.5% vs ~1.3%) because equal-weighting gives more allocation to higher-yielding sectors like utilities, real estate, and financials relative to lower-yielding mega-cap tech.
It depends on your goal. Owning both gives you a blend of equal-weight and cap-weight exposure — essentially a 'tilted' S&P 500 portfolio with less mega-cap concentration than pure SPY but less equal weighting than pure RSP. A 50/50 split is a reasonable middle ground if you believe market breadth will continue expanding but don't want to fully abandon mega-cap tech exposure.
The RSP vs SPY debate is ultimately about one question: do you believe the future will be driven by a narrow set of mega-cap companies, or by the broader economy?
If the Magnificent 7 continue to dominate earnings growth and market returns — as they did from 2018-2024 — SPY is the better choice. Its lower fees, superior tax efficiency, and automatic tilt toward the biggest winners make it the default index for most investors.
If market breadth continues to expand — as it has in 2025-2026 — RSP's equal-weight approach captures the participation of the other 493 stocks in the S&P 500 that market-cap weighting effectively ignores. RSP's built-in contrarian rebalancing, sector diversification, and mid-cap exposure give it structural advantages in broadening markets.
The historical evidence suggests that extreme concentration always eventually reverts. After the dot-com bubble, RSP outperformed SPY for seven consecutive years (2000-2007). We may be in the early innings of a similar rotation in 2025-2026. But "eventually" can take years, and the cost differential matters along the way.
For most long-term investors, the best approach is pragmatic: use SPY (or VOO) as your core holding for tax efficiency and low cost, and consider a 20-30% RSP allocation in tax-advantaged accounts to diversify away from mega-cap concentration risk. This blend captures the best of both worlds without making an all-or-nothing bet on either weighting methodology.