No stock can weigh more than 5% of the S&P 500 Index, but Apple is an outlier. The company’s growing market capitalization has forced through two index limitations. In ETFs, Apple is also coming in on the ceiling for diversification rules.
Investors seeking a more diversified ETF portfolio, without the heavy weighting in Apple, may consider equal-weight ETFs like the Guggenheim S&P 500 Equal Weight ETF (NYSEArca: RSP), First Trust Nasdaq 100 Equal Weighted Index Fund (NasdaqGM: QQEW) and the recently launched Direxion NASDAQ-100 Equal Weighted Index Shares (NYSEArca: QQQE). Over the long-term, the equal-weight methodology is expected to outperform since it provides has a higher weighting in small- and mid-cap stocks. For instance, RSP has gained 2.5% over the past 5-years, compared to the 4.2% loss in the SPDR S&P 500 (NYSEArca: SPY). [Direxion’s New Equal-Weight Nasdaq 100 ETF]
Guggenheim S&P 500 Equal Weight ETF
For more information on equal-weight funds, visit our equal-weight ETFs category.
Max Chen contributed to this article.