With the S&P 500 posting record highs, wealth managers are rethinking the wisdom behind buying the index for client portfolios.
The index has increased 256% since 2016, driven recently by an artificial intelligence spending boom, according to Seeking Alpha. Experts warn that given the index’s weighting toward technology firms, investors may be taking on too much risk.
“Many investors view the index as spreading out their exposure, but what they don’t realize is that 40 cents of every dollar is now going into the top 10 stocks,” said Nick Kalivas, Invesco’s head of factor and core equity ETF strategy.
Kalivas added: “If you think about the Mag 7, they are seeing a lot of volatility. They tend to move together in unison and because they are a large weight in the index there is not much diversification.”
Invesco’s S&P 500 Equal Weight ETF (RSP)
Growth of Invesco S&P 500 Equal Weight ETF compared to the S&P 500 Index.
Invesco
Aware of these risks, Kalivas said advisors have been asking Invesco about alternatives to the tech heavy S&P 500. One alternative is Invesco’s S&P 500 Equal Weight ETF (Symbol: RSP).
RSP replicates the S&P Equal Weight Index which pulls in all S&P 500 stocks and weights them equally. Eligible stocks must meet minimum liquidity, size and profitability standards before they are selected.
Equal weighting improves diversification but the strategy tilts toward riskier stocks and it requires frequent rebalancing, according to a 2025 Morningstar report.
Kalivas explained how the rebalancing works: “Every quarter those stocks that have moved up above their equal weight get trimmed back to equal weight and those stocks that are below their equal weight get pushed back up to their equal weight.”
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A 2025 Morningstar report notes that the downside of rebalancing more frequently is higher turnover and transactions costs, which can erode returns. RSP’s 21% turnover was 10 times greater than the S&P 500 index in 2024 but still within the category norm, Morningstar said.
The equal weight index leans toward smaller and lower quality stocks with a value tilt. The value tilt can be beneficial when value stocks are favored. Under these conditions, investors can expect the ETF to outperform most large-blend peers, Morningstar said.
Kalivas said the S&P 500 index has gotten “much more growthy over time” and it overlaps now more with the Nasdaq-100 Index than in the past. “The overlap has gone from 26% 10 years ago to more than 50% today.
“I would say that there’s nothing wrong with growth. Invesco sells growth ETFs and investors like growth, but when you’re thinking about the core of your portfolio, you probably don’t want to overlap that with your growth exposure.”
RSP’s focus on smaller size stocks with a value tilt should benefit growth-oriented portfolios, Kalivas noted. “This is a way to evaluate and lessen concentration risk. It mitigates the growth bias that is present in cap weight of the S&P 500.”