I saw this article in the January issue of Active Trader Magazine: “Trading a different S&P 500: The RSP vs. the SPY“. The RSP ETF contains the same 500 stocks that make up the S&P 500 but they are equally weighted as opposed to the S&P’s capitalization weighting. The interesting part is that the RSP has been outperforming the S&P 500. Here’s a quote from another article about RSP:
Most investors would agree that just because a company is bigger doesn’t mean that it is a better investment. Let’s look at the most well-known index, the S&P 500, and its well-known ETF, the SPDR. Many investors think that investing in the S&P 500 or the SPY means that their money is being divided equally between 500 companies. This is far from the truth. Because the companies are weighted by size, 22% of your investment is going to the ten largest companies in the index, and 60% of your investment is going to the largest 50 companies in the index.
This is why I have been advising clients to invest in the Rydex S&P 500 (amex: RSP – news – people ) equal-weight ETF, which weights each company in the index equally. In 2003, the equal-weight S&P 500 ETF beat the S&P 500 Index by 11%; in 2004, it beat the index by 5% and year-to-date, it’s ahead of the S&P 500 by 3.4%.
If indexing is your thing you may want to consider using RSP instead of SPY or some S&P mutual fund.
Update: I figured that Roger Nusbaum had written about RSP but I couldn’t find his posts via the Blogger search I did yesterday. Today, after getting his comment, I did a Google search and found several of his posts about RSP.
ETF Investor has some posts about RSP as well.