Equal weight S&P 500 ETF outperforms traditional S&P 500 ETFs as it sheds megacap weightings


The S&P 500 (SP500) along with its mirroring ETFs (NYSEARCA:SPY), (NYSEARCA:VOO), and (NYSEARCA:IVV) declined on Thursday as megacap tech names missed on earnings. While the benchmark indices declined, the broader market actually gained ground when viewing the market from an equal weight perspective.

According to 22V Research, they highlighted that “the S&P dropped -0.75% yesterday, but the equity rally continued behind the scenes; the equally weighted S&P rose +20bp yesterday, a 99th percentile outperformance relative to the cap-weighted S&P.”

As a result, the Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP) which is a more balanced index fund closed in the green on Thursday. Moreover, on the week the equal weighted RSP has doubled the returns of the S&P 500 at +2.8% compared to +1.1% as RSP shaves off the huge weighting of Megacap names that the traditional SPY holds.

The S&P 500 represents the most prominent 500 stocks, but Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Tesla (TSLA), and Alphabet (GOOG), (GOOGL) alone make up 20.33% of the exchange traded fund. Under RSP, the same stocks represent 0.90% of the ETF.

Bigger picture the equal weighted RSP has outperformed the traditional SPY in 2022. Year-to-date RSP is -15.6% and SPY is -20.5%.

In broader market news, the stock index futures point to a lower opening on Friday after Amazon became the latest megacap stock to disappoint Wall Street.

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