S&P 500 ETF

The S&P 500 is a capitalization weighted index. In other words, large companies make up a larger percentage of the index than small companies. In fact, the top 10 companies in the S&P 500 typically make up about 20% of the index. In an equal weighted index however, each stock has equal weight. Therefore, the top 10 companies would only make up 2% of the index.

There is an ETF that you can purchase if you want to have exposure to an equally weighted S&P500, it is called the Rydex S&P Equal Weight ETF – Symbol RSP. As with the more heavily traded SPY it contains all the companies found in the S&P 500 but each one has the same dollar value in the fund.

Let’s face it, there is no reason to think about this if there isn’t a performance advantage so let’s take a look at a comparison between the SPY and RSP ETFs. This chart goes back to April 24, 2003 which is the first trading date for RSP.

(There are two bad data points on this chart, please ignore them)

As you can see, there has been a distinct performance advantage by being invested in the equal weighted version of the S&P 500. This is why RSP has attracted a couple billion dollars worth of capital and trades almost a million shares per day.

The annual expense ratio is .40% (40 basis points) which is much higher than the 9 basis points charged by SPY, but historically the performance advantage has made this insignificant.