Exchange-traded funds tracking the S&P 500 are among the largest ETFs in the world. In fact, the SPDR S&P 500 ETF (NYSE:SPY) and the iShares Core S&P 500 ETF (NYSE:IVV) are the only ETFs trading in the United States with more than $100 billion in assets under management.
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For its part, SPY is the largest ETF in the world, but in the case of S&P 500 ETFs, bigger is not always better. Same goes for weighting stocks by market capitalization. That methodology is not always better, either. As much is proven by the hugely successful Guggenheim S&P 500 Equal Weight ETF (NYSE:RSP). RSP is over 14 years old and has established a lengthy track record of topping the cap-weighted S&P 500.
When evaluating RSP, investors will not see big weights to mega-cap stocks such as Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and the like. The largest weight granted to any of RSP's 505 holdings is a mere 0.25 percent.
The S&P 500 Equal Weight Index, RSP's underlying index, is rebalanced quarterly, which can lead to some other significant differences between itself and the cap-weighted S&P 500.
Sector representation is different between the indices because the weight of a sector in the EW index is strictly a function of the number of stocks in the sector, whereas cap-weighted sectors depend on company size and company count, said S&P Dow Jones Indices in a recent note. The largest sector in the EW index is consumer discretionary, because it has the most companies (85 as of March 31, 2017); however the largest deviation from cap-weighted sectors is in information technology because that sector comprises several mega-cap companies such as Apple.
The next largest underweights for RSP's index relative to the traditional S&P 500 are 2 percent apiece for consumer staples and healthcare. RSP's benchmark is overweight industrials and real estate stocks to the tune of 3.4 percent apiece at the end of the first quarter, according to S&P Dow Jones data.
In the 14 years since its launch on Jan. 8, 2003 (counting 2003 as a full year), the S&P 500 EW outperformed the cap-weighted S&P 500 10 times, underperforming in 2007, 2008, 2011, and 2015, said S&P Dow Jones Indices. The magnitude of outperformance was greatest in 2009 as the market bottomed and then began its recovery from the global financial crisis.
Over the past 10 years, RSP has outpaced standard S&P 500 ETFs in 100 percent of rolling monthly periods.
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