Equal Weight vs. Market Cap: Why RSP and IVV Investors Make Fundamentally Different Bets

Understanding the Two Philosophies Behind These S&P 500 Trackers

When investors think about gaining broad exposure to large-cap U.S. equities, the S&P 500 remains the go-to benchmark. But how you track it matters more than many realize. The iShares Core S&P 500 ETF (NYSEMKT:IVV) and Invesco S&P 500 Equal Weight ETF (NYSEMKT:RSP) both aim to capture the 500 largest American companies, yet they employ starkly different methodologies that produce measurably different outcomes.

RSP meaning: It’s an equal-weight index fund—a strategy where each company receives identical portfolio allocation regardless of market capitalization. This contrasts sharply with IVV’s approach, which weights holdings by their market cap, giving tech giants outsized influence.

The Core Structural Difference: Weight and Concentration

IVV replicates the traditional S&P 500 formula, where Apple Inc (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT), and Nvidia Corp (NASDAQ:NVDA) command roughly 12% of combined assets. Technology as a sector represents 43% of the portfolio—a direct consequence of market-cap weighting that can amplify gains during tech rallies but concentrates risk significantly.

RSP takes the opposite route. Its roughly 505 holdings include names like Sandisk Corp/DE (NASDAQ:SNDK), Micron Technology Inc (NASDAQ:MU), and Norwegian Cruise Line Holdings Ltd (NYSE:NCLH), each representing less than 0.3% of assets. Technology drops to just 16% of total allocation, with Industrials and Financial Services receiving substantially larger weightings than IVV provides. This rebalancing effect systematically reduces dependence on dominant mega-cap performers.

Cost, Income, and Historical Returns: The Numbers

IVV’s ultra-low fee structure (0.03%) reflects its massive scale—a $758.5 billion behemoth that processes enormous trading volume. The expense ratio advantage compounds meaningfully over decades. Meanwhile, RSP’s 0.20% annual cost remains reasonable but noticeably higher.

On income generation, RSP delivers 40 basis points more in annual dividend payments—a meaningful difference for investors prioritizing cash distributions. Over the trailing year, IVV’s tech concentration powered a 19.5% return versus RSP’s 14.1%, highlighting how sector exposure directly influences performance during specific market environments.

Risk Profile: Which Approach Experiences Larger Losses?

A critical metric for long-term investors is drawdown behavior. During the 2022 market correction, IVV experienced a 24.53% peak-to-trough decline, while RSP’s larger holdings in non-tech sectors cushioned losses at -21.37%. This 3.16% cushion reflects the volatility differential between heavy tech concentration and more balanced sector allocation.

Over five years, an initial $1,000 investment in IVV grew to $1,834, compared to $1,506 in RSP—a $328 difference attributable primarily to tech’s outperformance. However, this advantage came with higher volatility exposure and greater dependence on continued mega-cap dominance.

Fee Impact and Long-Term Wealth Accumulation

The 0.17% annual fee differential may seem trivial, but it compounds substantially. On a $100,000 portfolio, this difference costs an extra $170 annually. Over 30 years, assuming 8% annual returns, that fee disparity could reduce final wealth by roughly $25,000 after accounting for compounding effects. However, RSP’s higher dividend yield partially offsets this drag for reinvesting investors.

What’s Actually Inside Each Fund?

IVV’s Portfolio Construction: IVV holds approximately 500 companies weighted precisely as the S&P 500 Index reflects market capitalization. Top holdings command outsized influence—each of the tech “Magnificent Seven” stocks represents 2-5% of assets. This concentration strategy works brilliantly during tech-led bull markets but creates vulnerability when growth expectations shift. The fund has delivered market-matching returns by definition, making it the purest S&P 500 tracking vehicle available.

RSP’s Rebalancing Philosophy: RSP maintains equal weighting across all 505 S&P 500 constituents, requiring quarterly rebalancing. This systematic approach forces the fund to “buy low and sell high” automatically—selling winners that grew beyond their equal-weight allocation and buying underperformers. Historically, this rebalancing premium has added value during mean-reversion cycles, though recent years of persistent mega-cap outperformance have worked against equal-weight strategies.

Which Approach Suits Different Investor Profiles?

IVV Makes Sense If You:

• Prioritize minimizing costs (0.03% is essentially free)
• Want pure S&P 500 exposure matching the broad market
• Prefer higher recent returns and tech exposure
• Value simplicity and enormous liquidity
• Don’t need dividend income

RSP Makes Sense If You:

• Seek dividend income (1.6% yield vs 1.2%)
• Believe equal-weight strategies outperform during mean reversion
• Want lower volatility and smaller drawdowns
• Prefer more exposure to Industrials and Financials
• Are willing to pay modest fees for diversification philosophy

Understanding Beta and Volatility Metrics

Both funds carry beta readings near 1.0 (IVV at exactly 1.00, RSP at 0.99), meaning they move roughly in line with broad market returns. However, sector allocation differences create meaningful performance divergence. During periods when defensive sectors outperform, RSP’s lower tech weighting provides relative protection. Conversely, tech rallies disproportionately benefit IVV.

The Bottom Line: Philosophy Over Performance

Choosing between IVV and RSP ultimately reflects investment philosophy rather than obvious right/wrong answers. IVV offers the most cost-effective way to own the S&P 500 as it exists today, particularly appealing to buy-and-hold investors. RSP represents an alternative thesis—that reducing concentration risk and including small-cap-like rebalancing benefits justifies paying higher fees.

Recent performance has favored IVV’s market-cap approach, but historical data shows equal-weight strategies occasionally deliver outperformance across full market cycles. The answer depends on whether you believe in passive index matching or active rebalancing effects—and whether fee differences matter enough to influence your decision.