The Sun was shining brightly on the U.S. stock market over the past couple of years. Unfortunately, some clouds have made their way over to the market.
The S&P 500 -- the stock market's most important index -- is down over 8% from its Feb. 19 high, barely escaping correction territory because of a 2% single-day climb on March 14. Despite the current slump in the S&P 500, investing in the index is still a good idea.
However, there are other ways to invest in the S&P 500 aside from a standard S&P 500 exchange-traded fund (ETF). One of those ways is through an equal-weight ETF like the Invesco S&P 500 Equal Weight ETF (RSP 0.75%). Here's why.
What are the current issues with a standard S&P ETF?
One of the downsides of the S&P 500 is how top-heavy it has become. It's market cap-weighted, so larger companies make up more of the index than smaller companies. With big tech valuations skyrocketing over the past few years, the S&P 500 has become much more tech-leaning than in previous times. Below are the top 10 holdings in the S&P 500 (based on Vanguard S&P 500 ETF holdings):
| Company | Percentage of the ETF |
|---|---|
| Apple | 6.96% |
| Microsoft | 6.02% |
| Nvidia | 5.75% |
| Amazon | 4.34% |
| Meta | 2.93% |
| Alphabet (Class A) | 2.33% |
| Tesla | 2.20% |
| Broadcom | 2.02% |
| Alphabet (Class C) | 1.91% |
| Berkshire Hathaway (Class B) | 1.68% |
Source: Vanguard. Percentages as of Jan. 31.
Below is how the index is divided by sector:
| Sector | Percentage |
|---|---|
| Information technology | 30.7% |
| Financials | 14.5% |
| Health care | 10.8% |
| Consumer discretionary | 10.5% |
| Communication services | 9.4% |
| Industrials | 8.3% |
| Consumer staples | 5.9% |
| Energy | 3.3% |
| Utilities | 2.4% |
| Real estate | 2.20% |
| Materials | 2.00% |
Source: Vanguard. Percentages of as Jan. 31.
When the tech sector is flourishing, this concentration works out in the S&P 500's favor. When the sector isn't doing so well (like so far this year), it takes a noticeable toll on the index.
Invest in the S&P 500 without relying too much on the tech sector
One way to gain exposure to the S&P 500 without being too exposed to the tech sector is by investing in an equal-weighted S&P 500 ETF like the Invesco S&P 500 Equal Weight ETF. Instead of weighting the ETF by company market caps, it's split (almost) evenly among the companies it holds. Below are the ETF's top 10 holdings.
| Company | Percentage of the ETF |
|---|---|
| CVS Health | 0.27% |
| Gilead Sciences | 0.26% |
| AbbVie | 0.26% |
| Philip Morris International | 0.26% |
| Exelon | 0.26% |
| Intel | 0.25% |
| VeriSign | 0.25% |
| Globe Life | 0.25% |
| Progressive | 0.25% |
| Walgreens Boots Alliance | 0.25% |
Data source: Invesco. Percentages as of March 13.
There's a stark difference between the top holdings in the standard S&P 500 index fund and in the equal-weight S&P 500 index fund. Below is how this ETF is divided by sector:
| Sector | Percentage |
|---|---|
| Industrials | 15.18% |
| Financials | 14.70% |
| Information technology | 13.15% |
| Health care | 12.63% |
| Consumer discretionary | 9.41% |
| Consumer staples | 7.69% |
| Utilities | 6.76% |
| Real estate | 6.26% |
| Materials | 5.42% |
| Energy | 4.62% |
| Communication services | 3.89% |
Source: Invesco. Percentages as of March 14. The remaining investments are in index futures, investment companies, and cash.
How do the performances compare?
In the past 10 years, the S&P 500 has outperformed the ETF by 175% to 115%. However, since the ETF's April 2003 inception, it has outperformed the S&P 500 by a larger margin.
This isn't to say one is inherently "better" than the other because that all comes down to when you invest in each. However, it does show that being more evenly dependent on all sectors is great for long-term growth as the overall U.S. economy grows.
One example is the bear market rebound that followed the height of the COVID-19 pandemic. This ETF dropped by a larger percentage than the S&P 500 during the bear market (dropping 39.6% compared to 33.9%), but it performed much better over the next year as the recovery was more of a team job and not sector-specific.
Of course, past performances don't guarantee future results, but if you want to invest in the S&P 500 without tech determining so much of your returns (or lack thereof), this ETF is a good go-to.
