What Is RSP: Understanding Equal Weight Strategy in the S&P 500

The Invesco S&P 500 Equal Weight ETF (RSP) represents a fundamentally different approach to tracking the S&P 500 compared to its market cap-weighted counterpart. Rather than allowing the largest companies to dominate the fund’s holdings, RSP gives each of the approximately 505 companies in the S&P 500 an equal stake. This equal weight philosophy creates a distinct investment profile that appeals to certain investor preferences, though it comes with trade-offs that merit careful consideration.

RSP’s Equal Weight Philosophy: How It Differs From Traditional Index Tracking

The core distinction between RSP and market cap-weighted funds like IVV lies in how they allocate holdings. IVV replicates the standard S&P 500 by weighting each company according to its market capitalization, meaning that technology giants such as Nvidia, Apple, and Microsoft automatically command outsized positions. In contrast, RSP constrains each holding to represent less than 0.3% of the portfolio, fundamentally rebalancing the fund’s sector composition.

This equal weight methodology reshapes sector exposure dramatically. While technology comprises 43% of IVV’s portfolio, RSP limits tech to just 16% of assets. Consequently, RSP tilts its exposure toward Industrials and Financial Services—sectors that receive minimal representation in market cap-weighted indexes. Companies like Sandisk, Norwegian Cruise Line Holdings, and Micron Technology each play an equal role, preventing any single name from distorting performance.

The fund has maintained this strategy for over 22 years, demonstrating the longevity and institutional backing of the equal weight approach. RSP’s Assets Under Management total $77.2 billion, providing sufficient scale while remaining significantly smaller than IVV’s $758.5 billion.

Cost, Returns, and Risk: The Real Trade-offs Between RSP and IVV

When evaluating RSP against IVV, the expense ratio difference immediately captures attention. IVV charges only 0.03% annually—nearly negligible—while RSP’s 0.20% expense ratio is materially higher, though still considered affordable by ETF standards. For investors deploying $100,000, this translates to $20 additional annual fees with RSP compared to IVV.

Performance history reveals the impact of these structural differences. Over one year through January 9, 2026, IVV delivered 19.5% total returns while RSP generated 14.1%. This gap reflects IVV’s concentrated exposure to technology stocks, which dominated market rallies in that period. The multi-year picture shows similar dynamics: a $1,000 investment in IVV five years prior would have grown to $1,834, compared to $1,506 with RSP.

However, risk metrics tell a more nuanced story. RSP’s maximum five-year drawdown registered at -21.37%, compared to IVV’s -24.53%, indicating that RSP’s broader diversification cushioned against severe downside moves. Beta measurements—which quantify price volatility relative to the S&P 500 itself—register 0.99 for RSP and 1.00 for IVV, suggesting nearly identical systematic risk.

On dividend income, RSP compensates for its higher fees by delivering a 1.6% dividend yield versus IVV’s 1.2%. This higher payout reflects RSP’s tilt toward dividend-paying sectors like Financials and Industrials, attractive to income-focused investors willing to accept higher expense ratios for different sector positioning.

Inside RSP’s Portfolio: Sector Allocation and Diversification Benefits

Understanding what actually resides within RSP requires examining its holdings and their weighting structure. The equal weight methodology means that the fund’s top holdings—which include Sandisk, Norwegian Cruise Line Holdings, and Micron Technology—each represent less than 0.3% of total assets. This stands in stark contrast to IVV, where Nvidia, Apple, and Microsoft alone constitute a meaningful portion of the fund.

RSP’s sector distribution reflects its equal weight mandate. Technology occupies 16% of holdings, Financials contribute substantially, Industrials play an outsized role, and Health Care, Consumer Discretionary, and other sectors receive meaningful representation. This broad allocation means that performance increasingly depends on how different economic cycles favor various sectors rather than on the performance of mega-cap technology firms.

The rebalancing required to maintain equal weights introduces what market participants call “rebalancing drag”—the fund must periodically trim winning positions and add to lagging ones. In strongly trending markets favoring certain sectors, this can create a headwind to performance. However, in mean-reverting environments where underperforming sectors recover, equal weight rebalancing can enhance returns.

Choosing Between Equal Weight and Market Cap: What Fits Your Strategy?

The decision between RSP and market cap-weighted alternatives depends primarily on investment objectives and beliefs about market efficiency. IVV suits investors seeking to own the S&P 500 in its most standardized form while minimizing costs. The 0.03% expense ratio proves hard to justify avoiding for core holding positions, and IVV’s performance directly mirrors the index’s results.

RSP appeals to investors skeptical of mega-cap concentration or those preferring intentional sector diversification. The equal weight approach represents a deliberate bet that holding smaller companies proportionally to larger ones generates superior risk-adjusted returns or reduces tail-risk exposure. The historically lower maximum drawdown supports this thesis, though recent performance lags suggest that the tech-led market has penalized this positioning.

Income-focused investors should weigh RSP’s 40-basis-point dividend yield advantage against its higher expense ratio. For a $100,000 portfolio, the annual dividend income differential might justify RSP’s fees, particularly for retirement accounts where tax efficiency isn’t paramount.

Risk tolerance also factors into the choice. RSP’s volatility profile—slightly lower max drawdown despite nearly identical beta—suggests suitability for conservative investors uncomfortable with concentration in five to ten mega-cap technology stocks.

Key Metrics Summary

Essential ETF Terminology

ETF: An investment fund traded on stock exchanges that typically replicates a market index, providing diversified exposure through a single security.

Equal Weight Index: An index structure where every component receives identical weight regardless of market capitalization, requiring periodic rebalancing to maintain equal positions.

Market Cap-Weighted Index: Index methodology where company weight depends on total market value, creating higher weightings for larger corporations.

Expense Ratio: The annual percentage of assets deducted to cover fund operations, management, and administration.

Dividend Yield: Annual dividends paid by a fund divided by its share price, expressed as a percentage.

Beta: A statistical measure of how much an investment’s price fluctuates relative to a benchmark index.

Max Drawdown: The largest peak-to-valley percentage decline in an investment’s value over a specified timeframe.

Sector Exposure: The percentage of fund assets allocated to different economic sectors.

Rebalancing: The process of adjusting fund holdings back to target weightings, required periodically by equal weight funds.