For most people, “the market” means one thing: the S&P 500. But what many investors do not realize is that the S&P 500 is not actually a balanced collection of 500 companies. It is a ranking by size. And as of early 2026, that distinction has never been more important. (Source: ACM Wealth – S&P 500 vs S&P 500 Equal Weight)
This article compares two versions of the same 500 stocks: the traditional market cap weighted S&P 500 (tracked by SPY or VOO) and the S&P 500 Equal Weight Index (tracked by RSP). Same companies. Very different results. Understanding why can change how you think about diversification, concentration risk, and what “passive investing” really means. (Source: Zorroh – Diversification in Investing; Zorroh – ETF Investing for Beginners)
How the Two Indices Work
The S&P 500 uses market capitalization weighting. Bigger companies get a bigger share of the index. Apple, Microsoft, and Nvidia each take up far more space than a mid sized industrial or regional bank. Today, the top 10 holdings account for roughly 40% of the entire index. Historically, that figure hovered between 20% and 25%. (Source: ATB Wealth – Beyond the Magnificent Seven; Guinness Global Investors – S&P 500 Concentration Risk)
The S&P 500 Equal Weight Index gives every stock the same 0.2% weighting, regardless of market cap. Apple and a mid sized industrial company start on equal footing. The index rebalances quarterly to reset those weights. The Magnificent 7, which make up about 34% of the cap weighted index, represent only about 1.4% in equal weight. (Source: ATB Wealth – Beyond the Magnificent Seven)
| Feature | S&P 500 (Cap Weighted) | S&P 500 Equal Weight |
|---|---|---|
| Weighting method | By market cap (bigger = more weight) | Each stock = 0.2% |
| Top 10 stocks weight | ~40% | ~2% |
| Magnificent 7 weight | ~34% | ~1.4% |
| Rebalancing | Continuous (float adjusted) | Quarterly (back to equal) |
| Annual turnover | ~5% | ~22 to 29% |
| Primary ETF | SPY (0.09%) or VOO (0.03%) | RSP (0.20%) |
| Natural tilt | Large cap, growth, momentum | Mid cap, value, dividend |
(Source: S&P Dow Jones Indices; PortfoliosLab; ETF Trends)
Calendar Year Returns: Side by Side
The table below shows total returns (dividends reinvested) for RSP and SPY from 2013 to early 2026. The pattern is clear: when a few mega caps dominate, cap weight wins. When the market broadens, equal weight catches up or pulls ahead. (Source: Total Real Returns – RSP vs SPY)
| Year | RSP (Equal Weight) | SPY (Cap Weight) | Who Won? |
|---|---|---|---|
| 2026 YTD | +7.00% | +0.60% | Equal Weight by 6.4% |
| 2025 | +11.21% | +17.72% | Cap Weight by 6.5% |
| 2024 | +12.79% | +24.89% | Cap Weight by 12.1% |
| 2023 | +13.70% | +26.18% | Cap Weight by 12.5% |
| 2022 | -11.62% | -18.18% | Equal Weight by 6.6% |
| 2021 | +29.41% | +28.73% | Equal Weight by 0.7% |
| 2020 | +12.66% | +18.33% | Cap Weight by 5.7% |
| 2019 | +28.91% | +31.22% | Cap Weight by 2.3% |
| 2018 | -7.84% | -4.57% | Cap Weight by 3.3% |
| 2017 | +18.52% | +21.71% | Cap Weight by 3.2% |
| 2016 | +14.50% | +12.00% | Equal Weight by 2.5% |
| 2015 | -2.67% | +1.23% | Cap Weight by 3.9% |
| 2014 | +14.06% | +13.46% | Equal Weight by 0.6% |
| 2013 | +35.54% | +32.31% | Equal Weight by 3.2% |
Key pattern: cap weight dominated from 2023 to 2025 when AI and mega cap momentum were strongest. But in 2022 (a down year) and early 2026 (a broadening year), equal weight outperformed meaningfully. (Source: Total Real Returns – RSP vs SPY)
The Long Run: Surprisingly Close
Since RSP’s inception in April 2003 through February 2026, $10,000 invested in RSP grew to approximately $113,620 (total return with dividends reinvested). The same $10,000 in SPY grew to approximately $113,506. Nearly identical. Both delivered about 11.23% annualized. (Source: Total Real Returns – RSP vs SPY)
Over an even longer simulated period, S&P Global’s own research found that the Equal Weight Index returned 11.48% annualized over 20 years, compared to 10.29% for the standard S&P 500. It also outperformed mid cap and small cap benchmarks. (Source: S&P Global – More Equal Than Others: 20 Years of the S&P 500 Equal Weight Index (PDF))
The takeaway: these two approaches lead to very similar long run outcomes, but with very different paths along the way.
Why Equal Weight Is Beating Cap Weight in 2026
As of late February 2026, RSP has returned about +7.00% year to date, while SPY has returned just +0.60%. That is the second strongest relative outperformance for equal weight since 1990. What changed? (Source: Total Real Returns)
- Market breadth is expanding. Outperformance has shifted from the top 100 companies to the bottom 400 in the S&P 500. The sources of return are no longer confined to a handful of mega caps.
(Source: S&P DJI Indexology Blog – Big Tech, Breadth and Balance) - Tech is cooling off. Information Technology underperformance has been the single largest driver of equal weight’s recent gains, because equal weight carries a structural underweight to the sector.
(Source: S&P DJI Indexology Blog) - Value is beating growth. Equal weight has a natural tilt toward value. The S&P 500 Value has outperformed S&P 500 Growth in early 2026.
(Source: S&P DJI Indexology Blog) - Momentum is reversing. The S&P 500 Momentum Index underperformed the S&P 500 by 2% in January 2026. Historically, after extreme Momentum outperformance, equal weight tends to catch up.
(Source: S&P DJI Indexology Blog) - Concentration is declining. The top 10 weight in the S&P 500 has fallen below 40% since Q3 2025. The equal weight index outperformed the cap weighted S&P 500 by 3% over the three months ending January 28, 2026.
(Source: S&P DJI Indexology Blog)
The Concentration Problem
The S&P 500’s concentration has surpassed even the peak of the Dot Com bubble. The top 10 stocks now represent about 40% of the index, compared to roughly 27% at the Dot Com peak. During the 1950s and 1960s, the last time concentration exceeded 30%, the market experienced three separate bear markets with declines of 20% or more. (Source: ATB Wealth – Beyond the Magnificent Seven)
For every $1 you invest in the S&P 500 today, about $0.40 goes directly into just ten stocks. The remaining $0.60 is spread thinly across the other 490 companies. In the equal weight version, each company gets the same $0.002, giving you genuinely broad exposure across all 500 names. (Source: ATB Wealth)
Guinness Global Investors notes that unlike the Dot Com era, today’s mega caps are supported by strong fundamentals. The top 10 account for about 30 to 34% of the index’s forward earnings, not just 20% of earnings with 40% of weight. But there is still a gap between weight and earnings, and all ten are heavily exposed to the same AI theme. (Source: Guinness Global Investors – S&P 500 Concentration Risk)
Equal Weight’s Hidden Factor Tilts
Equal weighting is not just about reducing concentration. It introduces systematic factor tilts that change the character of the portfolio. Understanding these tilts is important because they explain why equal weight behaves differently in different environments. (Source: ETF Trends – Understanding Equal Weight Factor Tilts; Zorroh – Factor Investing Explained)
| Factor tilt | Direction in Equal Weight | What it means |
|---|---|---|
| Size | Toward smaller companies | Equal weighting pulls average market cap lower. This gives more exposure to mid caps. |
| Value | Toward cheaper stocks | Quarterly rebalancing trims winners and adds to laggards. This creates a natural value tilt. |
| Dividend | Higher dividend exposure | Smaller, value oriented companies tend to pay higher dividends. |
| Momentum | Anti momentum | Rebalancing systematically cuts winners. This hurts during trending markets but helps when trends reverse. |
| Quality | Slightly lower quality | Mega caps tend to score higher on quality metrics. Equal weight dilutes that exposure. |
The portfolio overlap between the S&P 500 and its equal weight version is only about 52%, as measured by the percentage of index weights held in common. Same 500 stocks, but a very different portfolio. (Source: ETF Trends)
The Tradeoffs
Equal weight is not strictly better or worse. It is different. Here are the tradeoffs to understand:
- Higher fees: RSP charges 0.20% versus 0.03% for VOO or 0.09% for SPY. Over decades, this adds up.
(Source: PortfoliosLab – RSP vs SPY) - Higher turnover: Quarterly rebalancing creates roughly 22 to 29% annual turnover, compared to about 5% for the cap weighted index. In a taxable account, this can mean more capital gains distributions.
(Source: S&P Global) - Misses concentrated winners: If a stock like Nvidia rallies for multiple quarters, cap weight lets that winner run. Equal weight trims it back to 0.2% every quarter, dampening the upside.
(Source: Morningstar – Equal Weighting Tradeoffs) - Higher volatility: RSP has a standard deviation of about 19.9% versus 18.6% for SPY. The worst drawdown was also deeper: -59.9% for RSP versus -55.2% for SPY.
(Source: Composer – RSP vs SPY) - Better diversification: The top 3 names hold 20%+ of cap weight, but it takes 94 holdings to reach the same 20% in equal weight.
(Source: Morningstar)
When Does Each Version Win?
| Environment | Cap Weight tends to win | Equal Weight tends to win |
|---|---|---|
| Market leadership | Narrow (few mega caps leading) | Broad (many stocks participating) |
| Style regime | Growth outperforming value | Value outperforming growth |
| Momentum | Strong trending markets | Mean reversion / trend reversals |
| Concentration | Rising (feedback loop benefits biggest) | After peaks in concentration |
| Economic cycle | Late bull runs led by large caps | Early recoveries, broadening rebounds |
S&P Dow Jones Indices’ own research confirms this: “After peaks in market concentration, we have seen that equal weight has tended to outperform. These trends in concentration and momentum tend to mean revert over time.” (Source: S&P DJI – Examining Equal Weight Performance)
What This Means for Your Portfolio
This is not a call to sell your S&P 500 ETF and move everything into equal weight. That would be making a concentrated bet in the opposite direction. Instead, think of equal weight as a tool for managing concentration risk within a diversified portfolio. (Source: Zorroh – Diversification in Investing)
Some practical ways to think about it:
- Blend the two: Some investors hold both VOO/SPY and RSP. A 70/30 or 60/40 split between cap weight and equal weight reduces mega cap concentration while keeping exposure to the index’s largest, most profitable companies.
- Use equal weight as a satellite: In a core satellite framework, keep a broad market ETF as your core and use RSP as a satellite to tilt toward broader market participation.
(Source: Zorroh – ETF Investing for Beginners) - Consider the tax angle: RSP’s higher turnover creates more taxable events. If you hold it in a tax advantaged account (IRA, RRSP, ISA, etc.), the turnover drag is reduced.
- Do not chase recent performance: Equal weight is outperforming now, but it lagged for three straight years (2023 to 2025). The point is not to pick the winner, it is to diversify across approaches.
Try It Yourself: The Zorroh Portfolio Analyzer
Want to see how these two approaches compare in a real backtest? Use the Zorroh Portfolio Analyzer to build your own comparison. (Source: Zorroh Investing Tools)
Suggested test: Cap Weight vs Equal Weight
- ETF 1: SPY (100% weight) as one portfolio
- ETF 2: RSP (100% weight) as a second portfolio
- Or try a blend: 60% SPY + 40% RSP
- Benchmark: SPY
- Date range: 2010 to 2026
- Rebalancing: Quarterly
What to look for:
- CAGR: Which approach delivered higher annualized returns?
- Max Drawdown: Which had a smoother ride during sell offs?
- Sharpe Ratio: Which delivered better risk adjusted returns?
- Correlation: How much diversification benefit does adding RSP to a SPY portfolio actually provide?
- Calendar Year Heatmap: Switch to the ETF Performance tab to see exactly which years each approach led or lagged.
Final Takeaway
The S&P 500 Equal Weight Index is not a replacement for the cap weighted index. It is a complement. Both versions hold the same 500 companies and have delivered nearly identical total returns since 2003, but through very different paths and with very different risk profiles.
In a market where passive investing has quietly become a concentrated bet on a handful of mega cap technology companies, understanding the difference between cap weight and equal weight is a useful step toward building a truly diversified portfolio. (Source: Zorroh – Diversification in Investing; CNBC – Investors All In on Mag 7 Stocks)
Disclaimer:
The content on this blog (Zorroh) is provided for general informational and educational purposes only. It is not intended as investment, financial, tax, legal, or other professional advice. Past performance is not indicative of future results. Investing involves risk, including possible loss of principal. Always conduct your own research or consult a qualified professional before making investment decisions.