Ian King
Chief Strategist, Strategic Fortunes
Equal Weight ETFs: Hidden Upside in Today's Market
Written by Gabriel Osorio-Mazilli. Published 8/23/2025.
Key Points
- The S&P 500 has reached a historical gap to the Equal Weight S&P 500, which means some trouble could be ahead. Here's how to cover your portfolio.
- A rotation back to historical norms would mean double-digit upside in this ETF, as well as downside protection.
- With a true way to be diversified, investors can remain in the market while cutting out some excess.
Investors often gauge the market through a single lens—typically the S&P 500 or the Nasdaq-100. But these indices are only benchmarks, and to uncover real opportunities you need to compare them against others.
It's like deeming a bond attractive at a 4% yield—until you spot a similarly safe conglomerate paying 6%.
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The SPDR S&P 500 ETF Trust (NYSEARCA: SPY) is the default choice for many investors, yet few have noticed how far it has drifted from peers like the iShares Russell 2000 ETF (NYSEARCA: IWM) or, more importantly, its close cousin, the Invesco S&P 500 Equal Weight ETF (NYSEARCA: RSP). The implications of this divergence could point directly to the next big opportunity.
Today's Market Is Not Yesterday's Market
When you buy SPY, you expect broad exposure across U.S. industries. Today, however, its weight is overwhelmingly concentrated in a handful of megacap stocks—almost all in the red-hot technology sector. NVIDIA Co. (NASDAQ: NVDA) now holds the largest position in the fund, meaning SPY investors are inadvertently overweight tech—and NVIDIA—whether they realize it or not.
This concentration has powered SPY's performance. Over the past 12 months, it has outpaced the iShares Russell 2000 ETF by more than 10%, as high rates and inflation continue to constrain smaller companies. In contrast, giants like NVIDIA can deploy billions toward strategic pivots, escaping those same headwinds.
By contrast, the Equal Weight S&P 500 ETF (RSP) assigns every company the same weight, offering a more balanced snapshot of the U.S. economy. Because no single stock can dominate returns, RSP's performance reflects broad market trends rather than the fortunes of a few tech titans.
Today, the gap between SPY and RSP has widened to 17.5%—a divergence not seen since the financial crisis of 2008. While this doesn't signal another crisis is imminent, history suggests such a gap rarely endures. Either RSP catches up, or SPY's concentration unwinds to close the spread.
Why Choose Equal Weight?
Historical norms imply that a convergence is due. If RSP simply matches SPY's performance from here, investors could pocket roughly 17.5%—echoing past reversions. If SPY experiences a pullback, RSP's underweight position makes it likely to hold up better, creating an appealing risk-to-reward profile.
Diving into RSP's portfolio underscores the case. No single stock exceeds 0.24% of assets, and any outliers are smoothed out by regular rebalancing. Even the top ten holdings span consumer, financial, and technology sectors, delivering diversified exposure to the U.S. economy.
SPY, in contrast, remains heavily tilted toward technology, with an outsized focus on semiconductors and chipmakers. While that concentration can fuel gains in a tech-led rally, it undermines diversification and amplifies downside risk if the sector stumbles.
All told, RSP offers a straightforward way to capture upside if the gap with SPY narrows—while also providing greater downside protection if today's concentrated leaders falter.
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