For example, among RSP’s top holdings, Vertex Pharmaceuticals (NasdaqGS: VRTX) is the largest portfolio holding at 0.25%, followed by Whole Foods Market (NYSE: WFM) 0.25%, FMC Corp (NYSE: FMC) 0.24%, C.R. Bard (NYSE: BCR) 0.24% and Lam Research Corp (NasdaqGS: LRCX) 0.2%. In contrast, the S&P 500’s largest picks include prominent names like Apple (NasdaqGS: AAPL), Microsoft (NasdaqGS: MSFT) and Amazon (NasdaqGS: AMZN).
“Although it holds the same stocks as the S&P 500, equal weighting can significantly change the fund’s characteristics,” McCullough said. “Compared with the index, the smallest stocks have overweightings and the largest have underweightings, creating a mid-cap equity performance contour.”
Due to its weighting methodology, RSP leans toward a mid-cap focus, including a market cap breakdown of 48.4% mid-caps, 39.9% large-caps and 11.3% mega-caps. On the other hand, the S&P 500 holds 50.0% mega-caps, 36.6% large-caps and 13.4% mid-caps.
Additionally, when the equal-weight ETF rebalances each quarter, the fund reduces stock exposure to those that have outperformed, which typically grow in size, and increases positions to names that have underperformed, which have likely gotten cheaper.
Sector weights are also driven by the number of companies in each sector rather than their market value, so RSP favors consumer discretionary, real estate and utilities sectors, but the equal-weight ETF underweights areas like tech, healthcare and financials when compared to the market cap-weighted S&P 500.