RSP: The Equal-Weight ETF Smashing Mega-Cap Dominance

The stock market is a game of risk and reward, and right now, one ETF is quietly rewriting the rules. The Invesco S&P 500 Equal Weight ETF (RSP) isn't just keeping up with its cap-weighted rival—it's outperforming it in ways that demand your attention. Let's dig into why this fund is a must-own for investors tired of letting a handful of tech giants dictate their returns.

The Equal-Weight Edge: Less Mega, More Diversification

The S&P 500 Index is dominated by giants like Apple, Microsoft, and Amazon—stocks that command over 25% of its weight. That's a problem. When those stocks stumble, the entire index drags down. RSP flips the script by giving every one of the 500 S&P 500 stocks equal 0.2% weight. This reduces reliance on megacaps and boosts exposure to mid-caps and smaller companies that often get overlooked.

Take a look at the numbers:
- Since 2003, RSP has returned 11.08% annually, just shy of the S&P 500's 11.10%.
- In 2025, RSP is crushing the S&P 500 YTD with an 8.2% return versus the cap-weighted index's 1.44%.

Why RSP Is Winning Now

The equal-weight strategy thrives in two scenarios:
1. Sector Rotations: When value or cyclical sectors (industrials, financials) outperform tech.
2. Market Volatility: During corrections, RSP's lower concentration in megacaps means fewer “fallen angel” stocks dragging it down.

Sector allocations tell the story:
- RSP: Heavy on industrials (15%), financials (14%), and healthcare (13%).
- S&P 500: Overweight in tech (31%), with utilities and real estate at 6% or less.

This structural shift isn't just theory. In Q1 2025, utilities and industrials surged as investors rotated out of overhyped tech stocks—a move RSP captured perfectly.

Cost Efficiency: A 0.20% Fee That Smiles at Competitors

RSP's total expense ratio (TER) is 0.20%, 75% cheaper than the median ETF in its category. Paired with its zero capital gains distributions since 2003, this fund is a tax-efficient powerhouse. Investors keep more of their returns while avoiding the “tax torpedo” that plagues actively managed funds.

The Downside? It's Manageable

No strategy is perfect. RSP can lag when megacaps run wild—like during the 2023 AI boom, when the S&P 500 surged 18.4% over 12 months versus RSP's 12.5%. But here's the catch: those megacap rallies are often fleeting. Over the past three years, RSP's -26.65% max drawdown was 5 percentage points less severe than the S&P 500's.

Time to Hedge Your Bets

The Federal Reserve's pause on rate hikes in early 2025 has sent bond yields soaring, punishing rate-sensitive tech stocks. Meanwhile, geopolitical risks (hello, Middle East tensions!) are keeping volatility high. This is RSP's moment.

Action Plan:
- Dollar-Cost Average into RSP to avoid timing the market.
- Replace 20% of your S&P 500 holdings with RSP to diversify sector exposure.
- Hold for the long term: Its rebalancing discipline systematically sells winners and buys losers—a contrarian edge that compounds over time.

The Bottom Line

RSP isn't about beating the S&P 500 every month. It's about owning a portfolio that doesn't put all its eggs in one basket. With a lower expense ratio, better risk-adjusted returns, and a sector mix primed for today's market, this ETF deserves a seat at your investment table.

Invest wisely—and always keep an eye on those megacaps.