What’s the overlap between the highest 10 names within the S&P 500 now versus 20 years in the past? Only one.

Exxon Mobil is the one acquainted title when evaluating an inventory of the biggest companies within the U.S. in 2003 and 2023. Regardless of the continual shift within the largest names within the S&P 500, most traders are nonetheless allocating to a cap-weighted S&P 500 fund, successfully betting on the continuance of current traits out there — betting that the identical giant names will proceed to generate robust returns.

The biggest names within the S&P 500 in 2003 included Wal-Mart Shops, Normal Motors, Exxon Mobil Company, Ford Motor, Normal Electrical, Citigroup, ChevronTexaco, Intl. Enterprise Machines, American Intl. Group, and Verizon Communications.

Twenty years later, the index’s high holdings embrace Apple, Microsoft Company, Amazon.com Inc., NVIDIA Company, Alphabet Inc. Class A, Berkshire Hathaway, Alphabet Inc. Class C, Tesla Inc., Meta Platforms Inc. Class A, and Exxon Mobil Company.

The focus of these high names has additionally advanced tremendously, with the S&P 500 rising ever extra top-heavy, leaving traders dealing with historic ranges of focus threat. Whereas the aim of the S&P 500 is to supply publicity to 500 firms, the 5 largest firms have grown to account for almost 20% of its weighting as of April 17, a big rise from 14% in 2003.

The Invesco S&P 500® Equal Weight ETF (RSP) is predicated on the S&P 500 Equal Weight Index, which is designed to be a size-neutral model of the S&P 500. It consists of the identical constituents because the cap-weighted S&P 500, however every firm within the S&P 500 Equal Weight Index is allotted the identical weight — 0.2% — at every quarterly rebalance, mitigating focus threat.

See extra: “How Does RSPE Examine to RSP?”

Equal weight’s anti-momentum and worth issue tilts have helped it outperform the S&P 500 over varied intervals. Throughout challenged markets in 2022, RSP outpaced the S&P 500 by 7%. Since RSP’s inception in April 2003, RSP is outpacing the S&P 500 by over 10,000 foundation factors.

Focus within the S&P 500 reached a brand new milestone final month because the mixed weight of the biggest two constituents within the S&P 500 reached an all-time excessive.

In late March, Apple and Microsoft reached a mixed weight of 13.3% within the S&P 500, the very best degree on file. Such a excessive focus within the S&P 500’s high holdings can depart traders susceptible within the occasion that the businesses’ present excessive valuations fall again to earth.

Throughout the market downturn in 2022, the biggest S&P 500 firms shed a higher share of worth than different constituents within the index. The ten largest names within the index have been value a mixed $7.986 trillion on the finish of 2022, down 37% from 2021. The mixed market worth of all firms within the index fell about 20% through the 12 months, in accordance with S&P Dow Jones Indices.

The biggest constituent within the benchmark index, Apple, declined 26.4% on a complete return foundation in 2022, making it the biggest contributing constituent for the S&P 500’s disappointing exhibiting in 2022. Amazon and Tesla adopted, falling 49.6% and 65.0% in 2022, respectively. Shares of Microsoft dropped 28.0%, and Meta plummeted 64.2% final 12 months.

For extra information, info, and evaluation, go to the Portfolio Methods Channel.