Key Points
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The S&P 500’s performance is highly influenced by the tech sector’s performance.
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An equal-weight S&P 500 divides your investment roughly equally between all companies.
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The Invesco S&P 500 Equal Weight ETF is best used as a supplemental portfolio piece.
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It hasn’t been the best three-month start for the S&P 500 (SNPINDEX: ^GSPC), down more than 7% at one point in March before partially recovering to a -4% performance by April 1. That has been the trend across many major indexes, especially those with a large tech presence.
The current slump can make investors hesitant to continue putting money into the market, but that’s not usually a productive approach. The S&P 500 has always experienced ups and downs, so this isn’t completely out of left field.
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Investors should continue to trust the S&P 500, but it could be helpful to approach the index from a different angle. That’s why in April, the smartest S&P 500 ETF to invest in is an equal-weight S&P 500 like the Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP).
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The S&P 500 tends to go as tech goes, for better or worse
Since the standard S&P 500 gives more weight to larger companies, it has become extremely top- and tech-heavy.
Nine of the top 10 holdings are tech companies (including both Alphabet classes), and the “Magnificent Seven” stocks — Nvidia, Microsoft, Apple, Amazon, Alphabet, Meta Platforms, and Tesla — account for nearly 33% of the index. In the equal-weight S&P 500, they account for a combined 1.3%.
The S&P 500’s concentration has worked in its favor over the past decade (it has outperformed RSP 212% to 143%), mainly due to the growth of big tech stocks. With the tech sector accounting for nearly a third of the S&P 500 and just over 13% of the RSP, the gap in their performance will come down to how well the tech sector does.
When tech is flourishing, the standard S&P 500 will flourish. When it’s slumping, the equal-weight S&P 500 tends to hold its value better, as we’ve seen to start this year, as well as during the 2022 bear market. RSP still dropped by 13% in 2022, but that was much less than the S&P 500’s roughly 19% drop.
Don’t completely jump ship on the standard S&P 500
I still prefer the S&P 500 for the long term and think it’s one of the best investments most investors should make. I like the hedge that the equal-weight S&P 500 provides,