Investing in exchange-traded funds (ETFs) has long been an easy way for investors to gain exposure to the stock market without picking individual stocks. But these days, a traditional S&P 500 ETF might not be as balanced as it once was. The dominance of a handful of mega-cap stocks, often called the “Magnificent Seven,” means that many funds are top-heavy, with a large portion of their assets concentrated in just a few companies.
For investors looking to spread their risk more evenly, there are alternative ETFs that track the S&P 500 but with different weighting strategies. Two such funds—Invesco S&P 500 Equal Weight ETF (RSP) and Invesco S&P 500 Revenue ETF (RWL)—offer a different approach to diversification. While they haven’t kept pace with the broader index over the past decade, they could be smart picks for investors who prioritize balance over chasing the biggest winners.
The Problem With Market Cap-Weighted ETFs
Most S&P 500 ETFs weight stocks by market capitalization, meaning larger companies make up a bigger portion of the fund. This has led to a situation where the top stocks dominate:
- The seven largest companies in the index currently account for around 30% of its total value.
- The technology sector makes up more than a quarter of the index, adding significant concentration risk.
- During market downturns, a heavy reliance on a few high-priced stocks can amplify losses.
For investors looking for a more balanced approach, ETFs that use alternative weighting methods might be a better bet.
Invesco S&P 500 Equal Weight ETF: Spreading the Risk
The Invesco S&P 500 Equal Weight ETF (RSP) takes a simple but effective approach—every stock in the index gets the same weight. This means that a company like Apple or Microsoft doesn’t have an outsized influence on the fund’s performance.
- Each stock in the fund starts with an equal allocation, which is rebalanced quarterly.
- The largest holding, Palantir Technologies, represents just 0.33% of the portfolio.
- The technology sector makes up only 14% of the fund, reducing reliance on a single industry.
While this approach can limit upside during tech-driven market rallies, it can also provide stability when big-cap stocks struggle. Over the long term, an equal-weight strategy tends to favor smaller companies that may not get as much attention but still have strong growth potential.
Expense Ratio and Performance
The expense ratio for this ETF is 0.2%, which is slightly higher than traditional S&P 500 index funds but still reasonable. However, because this fund doesn’t give extra weight to the largest companies, its performance has lagged behind the standard S&P 500 over the past decade.
That said, for investors who want true diversification and to avoid being overly dependent on a handful of companies, this ETF offers a compelling alternative.
Invesco S&P 500 Revenue ETF: A Different Take on Weighting
Another option is the Invesco S&P 500 Revenue ETF (RWL), which weighs stocks based on their revenue rather than market capitalization. The idea behind this approach is that companies with strong sales—not just high stock prices—get a greater share of the fund’s assets.
- Top Holdings: The biggest positions are Walmart, Amazon, and UnitedHealth Group, which collectively make up 10% of the fund.
- Sector Breakdown: Unlike most S&P 500 funds, tech stocks account for just 10% of total holdings.
- Leading Sectors: The biggest sector allocations are healthcare (19%), financials (16%), and consumer staples (13%)—offering a more balanced mix than the traditional index.
This fund provides a middle ground between a pure equal-weight strategy and a market cap-weighted fund. It still gives larger allocations to bigger companies, but instead of focusing on stock price, it prioritizes actual business performance.
Higher Fees, Different Risk Profile
The expense ratio for this ETF is 0.39%, which is higher than both the Equal Weight ETF and traditional S&P 500 funds. That said, investors might find the added cost worthwhile if they want a fund that better reflects the revenue power of its components rather than just their market value.
Which ETF Is Right for You?
Choosing between these two funds depends on your investment goals:
| ETF | Weighting Method | Expense Ratio | Tech Exposure | Best For |
|---|---|---|---|---|
| Invesco S&P 500 Equal Weight ETF (RSP) | Equal weight | 0.2% | 14% | Investors who want every stock to have an equal influence |
| Invesco S&P 500 Revenue ETF (RWL) | Revenue-based | 0.39% | 10% | Investors who want a mix of size-based weighting but prefer sales-driven rankings |
For investors concerned about top-heavy funds and concentration risk, these ETFs provide alternatives that offer broader exposure without relying too much on the biggest names in the market.
Both have underperformed the standard S&P 500 in recent years, but if market leadership shifts away from mega-cap tech stocks, they could prove to be smarter bets in the long run.
