The case for owning the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has always been simple: cheap, liquid, and the default proxy for U.S. equities. The problem in 2026 is that SPY no longer behaves like a diversified bet on 500 companies. Roughly a third of the cap-weighted index sits in a handful of Magnificent Seven names, and when that cohort stalls, the whole fund stalls with it. SPY is up just 7.58% year-to-date, lagging an alternative that owns the exact same 500 stocks in a different ratio.
That alternative is the Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP), which holds every S&P 500 constituent at the same weight and charges 0.20% a year to do it.
Why SPY Stopped Acting Like an Index Fund
SPY weights its holdings by market capitalization, so a $3 trillion company gets roughly 100 times the allocation of a $30 billion one. That worked beautifully while mega-cap tech led the market. It is working against holders now. The cap-weighted S&P 500 is up 7.58% YTD through June 23, while the equal-weight version of the same index has gained 9.93% over the same window. The roughly 2.4 percentage point gap exists because the top names that dominate SPY’s returns have been a drag, not a tailwind, in 2026.
Morningstar’s 2026 outlook frames the structural issue plainly: the top 10 U.S. stocks now account for over one-third of the market, up from 18% a decade ago. Goldman Sachs Asset Management puts the figure at roughly 40% of the S&P 500’s market cap, with the concentration in the top 10 names. An SPY holder owns the index in name and a concentrated mega-cap bet in practice.
What Equal Weight Actually Changes
This fund assigns each of the 500 S&P constituents the same weight at every quarterly rebalance, which comes out to near 0.2% per name. That means a company like Apple gets the exact same allocation as a mid-cap industrial name. The fund still owns the Magnificent Seven stocks, but their combined influence drops from roughly a third of the portfolio down to about 1.4%. That mechanical choice tilts the fund toward sectors the cap-weighted index underrepresents, specifically industrials, financials, and mid-cap consumer names, while moving away from mega-cap technology exposure.
When the Magnificent Seven sells off or churns sideways, SPY feels it disproportionately. RSP barely notices. Over the past 12 months, RSP returned 20.02% versus SPY’s 24.80%, so the rotation only fully arrived this calendar year. Over five years, RSP is up 51.99% against SPY’s 85.54%, a reminder that cap weighting won the prior cycle.
The 2023 Counterexample Matters
Equal weight carries its own tradeoffs. In 2023, when the Magnificent Seven powered nearly all of the index’s gains, RSP returned 13.7% while SPY returned 24.29%. An RSP holder left more than 10 percentage points on the table that year for owning the same companies in a different ratio. The same mechanism that helped in 2026 hurt badly in 2023. The decision to swap reflects a view on which regime will persist.
Cost is a real, if modest, tradeoff. RSP’s 0.20% expense ratio is higher than that of the cheapest cap-weighted S&P 500 funds, which charge in single basis points. Quarterly rebalancing also generates more internal turnover than SPY’s near-static portfolio, with potential tax implications in non-qualified accounts.
How to Think About the Swap
In a tax-advantaged account, switching SPY to RSP is mechanically simple and triggers no capital gains. In a taxable account, the embedded gains in a long-held SPY position can make a full swap expensive, and directing new contributions toward an RSP or pairing the two funds captures most of the diversification benefit without realizing gains. A blended allocation also softens the regime risk: RSP wins when breadth improves, SPY wins when the top names lead again.
A Position to Reweigh
The flagship S&P fund, SPY, remains a useful broad-market vehicle, but it is simply more concentrated than its name suggests. That concentration is exactly what is hurting it right now. The equal-weight alternative, RSP, offers the same 500 companies, with the megacap dominance removed, for a fee of 0.20%. That swap makes sense for holders who believe the 2026 broadening lasts, but it looks worse the moment the Magnificent Seven lead again. That is precisely the asymmetry you have to weigh against your own time horizon and conviction.
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