Financial Pros Top Alternative ETF to Play the S&P 500

One of the biggest criticisms of the S&P 500 is its weighting.

The top 10 companies make up over a third of the index, making it tech-heavy.

That can leave investors overexposed.

Financial pros often take a balanced approach by adding equal-weight ETFs like the Invesco S&P 500 Equal Weight ETF (RSP).

This unique approach to the S&P 500 index gives every company the same weighting. That can hurt when you’ve got a rally led by a few big companies, but it’s a boon when they’re the ones crashing the market.

To decide whether this financial pro top alternative S&P 500 ETF is right for you, check out our detailed analysis below.

Key Facts About RSP

• Net assets: $35.08 billion
• 12-month trailing yield: 1.79%
• Inception: April 24, 2003
• Expense ratio: 0.20%
• Number of holdings: 504

As the name suggests, the S&P 500 index holds 500 stocks (the other 4 holdings are typically cash or other temporary equivalents).

To give you a sense of the difference between the RSP Equal-Weight ETF and the S&P 500, we’ve posted the top 10 holdings and sectors side by side below for both:

Source: ETF.com

Notably, each holding in the RSP is 0.33% or less. Because of this, the number of financial companies in the S&P 500 puts the equal weight’s exposure up to 17.3% in the finance sector.

On the other hand, the SPY has no weighting restrictions, allowing companies like Apple, Microsoft, and other big tech names to dominate the index, making tech services and electronic technology a massive part of the index.

Performance

The equal weighting tends to lead to lower volatility, but lower returns.

That’s why the 5YR and 10YR returns tend to be about 2% lower per year for the RSP than the SPY.

Source: ETF.com

Notably, the RSP runs a notably higher expense ratio than the SPY at just 0.09%, which is consistent across any equal-weight fund.

Competition

Equal weighting is the only alternative play on the S&P 500. Below are four of the next most popular options amongst financial pros according to our Trackstar data:

• Invesco S&P 500 High Beta ETF (SPHB): Tracks the performance of the 100 stocks from the S&P 500 Index with the highest sensitivity to market movements, or beta, over the past 12 months. 
• ProShares S&P 500 Ex-Technology ETF (SPHB): Tracks the performance of the S&P 500 Index, excluding the technology sector
• ProShares S&P 500 Aristocrats (NOBL): Tracks the performance of the S&P 500 Dividend Aristocrats Index, which consists of companies from the S&P 500 Index that have increased their dividends for at least 25 consecutive years.
• SPDR Portfolio S&P 500 High Dividend ETF (SPYD): Tracks the performance of the S&P 500 High Dividend Index, which consists of 80 stocks from the S&P 500 Index that have high dividend yields financial institution.

As you’ll see below, people own the S&P 500 because they want exposure to technology. That’s why the SPXT is the least popular ETF we’ve seen in a while.

The high beta ETF is the only one to outperform the S&P 500 over the 5-year period.

We were a bit surprised to see that the high dividend ETF actually showed negative returns unless you went out past one year.

Our Opinion 10/10 

We love the RSP for its balanced approach. It outperformed most of the other ETFs on this list and has excellent liquidity.

For those looking to reduce their portfolio volatility, this is definitely a stock to consider as a core holding.