SPY tracks the performance of the market weighted S&P 500 index while RSP equally weights all of the stocks in the S&P 500 index. The differences in their weighting methodologies leads to significant differences in their risk profiles and returns. On top of the difference in their approach, these two S&P 500 ETFs have different expense ratios – SPY charges just 0.09% while RSP is more expensive at 0.2%.
If you’re thinking of investing in the S&P 500 index over the long term, would you do better with RSP’s equal weighted approach given its higher expense ratio?
We explore the differences between RSP and SPY ETFs in greater detail here to help you select the best S&P 500 ETF for your portfolio.
But first, here’s a quick introduction to these S&P500 ETFs:
What is SPY?
The SPDR S&P 500 ETF (SPY) is one of the biggest ETFs in the world. It tracks the S&P 500 index which is composed of the top 500 companies listed in the US markets, by market capitalization.
By investing in the SPY ETF, you gain exposure to a diversified portfolio of the best US companies. The S&P 500 index is a market capitalization weighted index which means that the larger companies will have a greater weightage than smaller ones in the index.
That said, historically, smaller companies tend to deliver greater returns.
Would you be able to capture greater returns if you could invest in the S&P 500 companies equally?
Introducing:
What is the Invesco S&P 500 Equal Weight ETF (RSP) ?
The Invesco S&P 500 Equal Weight ETF (RSP) tracks the S&P 500 Equal Weight Index. This essentially contains the same companies as the S&P 500, except that every company is weighted equally regardless of their size or market capitalization.
Here’re the key differences between RSP and SPY ETFs:
RSP vs SPY
| SPDR S&P 500 ETF Trust (SPY) | Invesco S&P 500 Equal Weight ETF (RSP) | |
| Strategy | Weights holdings based on market cap | Gives equal weight to all 500 holdings |
| Number of Holdings | 504 | 503 |
| Expense Ratio | 0.0945% | 0.2% |
| Assets Under Management | US$381.5B | US$32.4B |
| Dividend Yield (12 month) | 1.57% | 1.84% |
| Top 5 Holdings | Apple (7.48%), Microsoft (6.68%), Amazon (2.9%), Nvidia (2.04%), Alphabet (2.01%) | Eli Lilly & Co (0.27%), Intuitive Surgical Inc (0.27%), DaVita Inc (0.26%), Chipotle Mexican Grill (0.26%), Meta Platforms (0.26%) |
| Performance | Historically performs similarly to S&P 500, lower risk | Historically outperformed SPY over time |
| Risk/Return | Potentially lower risk/reward profile | Potentially higher risk/reward profile |
| Which type of investors should consider this? | Those seeking exposure to the overall US stock market | Those seeking more balanced exposure |
1) RSP vs SPY – Strategy
As mentioned above, RSP weighs the components in S&P 500 index equally while SPY weighs components by market capitalization. With RSP, you get a more balanced exposure to the top 500 companies listed in the US.
However, since your portfolio is equally affected by the performance of all 500 stocks, you should be prepared for greater volatility and a higher risk-to-reward profile, due to the nature of the smaller stocks.
The SPY tends to track the performance of S&P 500 closely.
2) RSP vs SPY – Performance
Research has shown that smaller companies tend to outperform in the long run.
Having an equal weighted portfolio should ideally deliver greater returns since the performance would not be dependent only on the few big companies.
But does the research hold true in the real world?
Here’s the performance of RSP vs SPY over the last 20 years (2003 – 2023):
Over the long term of 20 years, RSP delivered a better return of 9.47% per year as compared to SPY’s 8.8%.
Do note that your actual performance would be dependent on when you start investing and if you managed to hold the ETFs through the years.
Of course you’d also be wondering if the RSP did better in the short term. What if you had paper hands and sold your positions too early??
Unfortunately, in the shorter term, RSP doesn’t offer that much difference in terms of performance:
Here’s a comparison of their CAGR across different time periods:
| 1 Year | 5 Year | 10 Year | 20 Year | |
| RSP ETF | -5.75% | 9.68% | 11.05% | 10.81% |
| SPY ETF | -5.86% | 11.29% | 12.22% | 9.93% |
Since we’re on the topic of fees, let’s move on to:
3) RSP vs SPY – Expense Ratio
RSP has an expense ratio of 0.2% which is almost twice that of SPY’s which stands at 0.0945%.
While 0.2% is still considered cheap, it would definitely eat into RSP’s eventual returns, especially in years when the performance of an equal weighted portfolio is on par with the market capitalization weighted portfolios.
Of course if you’ve been looking into S&P 500 ETFs, you would have learnt about IVV and VOO, both of which track the S&P 500 at an even lower expense ratio of 0.03%.
4) RSP vs SPY – Dividend
Good news, both RSP and SPY pay dividends thanks to their underlying components.
At the point of writing, RSP’s 12-month dividend yield is at 1.84% while SPY ‘s is at 1.57%.
5) RSP vs SPY – Sharpe Ratio
Sharpe Ratio is a measure of risk-adjusted returns; basically, it gives us an idea of the risk an investor has taken on to generate returns.
If you take a second look at the comparisons above, you’d notice that RSP tends to have a lower Sharpe Ratio than SPY. This is because RSP’s equal-weighted approach gives a greater weightage to smaller companies which tends to be volatile.
This brings us to:
6) RSP vs SPY – Maximum drawdowns
Due to the volatility of smaller companies, you’d notice that RSP tends to have a larger drawdown as compared to SPY, especially over the long term. This means that the value of your RSP ETF could drop a lot more in comparison to SPY during certain time periods.
Here’s the maximum drawdowns you have had to handle over different time periods:
| 1 Year | 5 Year | 10 Year | 20 Year | |
| RSP ETF | -18.5% | -26.65% | -26.65% | -55.58% |
| SPY ETF | -20.25% | -23.93% | -23.93% | -50.8% |
Except for the most recent 1 year, RSP’s maximum drawdown is usually higher than that of SPY’s.
SPY vs RSP: Which S&P 500 ETF is better for you?
While both SPY and RSP track the S&P 500 index, the differences in how they weigh the 500 stocks leads to different risk and returns.
Over the long term, RSP has done better than the SPY, based on historical data.
If you’re planning to invest in the S&P 500 over the long term of more than 20 years, you may want to consider the equal weighted RSP ETF. Otherwise, you may want to consider the lower cost S&P 500 ETFs discussed here.
