If you have part of your portfolio in an S&P 500 index fund, you’re probably patting yourself on the back for the 12%-plus performance you’ve already notched this year. But you could have done even better.
A less flashy corner of the index-fund world treats Nvidia and a random mid-cap industrial stock as equals. It is beating the market by a wide margin.
The Invesco S&P 500 Equal Weight ETF (RSP) is up 15.95% year to date through Aug. 26, compared with 12.37% for the iShares Core S&P 500 ETF (IVV)—a nearly 3.58 percentage-point gap that has put equal weighting back in the spotlight.
That outperformance just reached a milestone of its own: RSP crossed $100 billion in assets under management for the first time on Aug. 19, capping a run that has seen the fund pull in more than $12 billion in net inflows in 2026 alone.
Why equal weight funds are beating the market
The mechanics explain the divergence. A market-cap-weighted fund like IVV gives its largest constituents, such as Nvidia, Microsoft, Apple, and Amazon, outsized influence because they represent an outsized share of the index.
RSP instead assigns each of the 500 companies roughly the same weight at each quarterly rebalance, muting the influence of any single giant.
That structural difference matters in 2026, Brendan McCann, senior associate manager research analyst at Morningstar, told Fortune.
He pointed to underperformance among several of the market’s largest names as the key swing factor: “Several of the big names in the market, like Microsoft, Nvidia, and Apple, have underperformed the broader technology market. Since RSP underweights those companies, its performance is more insulated when those stocks underperform.”
The flip side has reinforced the trend. “Several smaller S&P 500 stocks have performed exceptionally in 2026, and equal weighting gives those stocks more weight,” McCann said.
RSP is therefore not just avoiding tech’s laggards—it is capturing upside from smaller names that a cap-weighted fund would barely register.
How crowded is the trade?
This milestone naturally raises the question of whether the equal-weight trade has become too popular for its own good.
McCann isn’t worried yet. “I think at $100 billion the ETF still has plenty of runway,” he said.
But he flagged a real constraint tied to fund size: liquidity in RSP’s smallest holdings. As the size of the ETF climbs, it gets harder to trade the smallest stocks in the portfolio, McCann said.
“There’s no perfect number for how large the assets could grow, but I would say if assets were to quadruple, it could be more challenging to rebalance the portfolio.”
That would put the potential stress point near $400 billion.
What the gap reveals about the broader market
McCann sees that gap as a live snapshot of just how much the S&P 500 now depends on a handful of giant stocks.
The primary driver, especially with the concentration in the market today, is the performance of the largest stocks relative to the broader market, he explained.
Because so many of those largest stocks sit in one sector, technology’s fortunes disproportionately steer the cap-weighted index’s returns.
The numbers illustrate just how lopsided that concentration has become. As of Aug. 25, the S&P 500 Equal Weight Index held roughly 17% in technology, versus a 38% technology weighting in the standard S&P 500 Index—a gap of about 21 percentage points, according to McCann.
The cap-weighted benchmark tracked by most index funds and 401(k) target-date funds is, in effect, a leveraged bet on one sector.
The implication cuts both ways. “Should the technology sector take a hit, RSP should hold up better than the broader market,” he said, which is a defensive case for equal weighting.
But it also means RSP’s fortunes will keep hinging on tech’s next move: a rebound in Nvidia, Microsoft, or Apple could just as easily narrow the performance gap that has fueled this year’s inflows.
Facts Only
* Invesco S&P 500 Equal Weight ETF (RSP) was up 15.95% year to date through August 26.
* The iShares Core S&P 500 ETF (IVV) was up 12.37% year to date.
* There is a gap of 3.58 percentage points between the two funds' performance.
* RSP crossed $100 billion in assets under management on August 19.
* RSP has seen more than $12 billion in net inflows in 2026.
* Market-cap-weighted funds give outsized influence to large constituents like Nvidia, Microsoft, Apple, and Amazon.
* Equal weighting assigns roughly the same weight to each of the 500 companies quarterly.
* Underperformance among several large names insulated RSP’s performance due to underweighting them relative to the broader market.
* Several smaller S&P 500 stocks have performed exceptionally in 2026, and equal weighting weights them more heavily.
* The S&P 500 Equal Weight Index held roughly 17% in technology as of August 25.
* The standard S&P 500 Index had a 38% technology weighting as of August 25.
Executive Summary
The Invesco S&P 500 Equal Weight ETF (RSP) has outperformed the standard index, with a year-to-date return of 15.95% through August 26 compared to 12.37% for the iShares Core S&P 500 ETF (IVV). This performance divergence has drawn attention to equal weighting strategies. The outperformance milestone was reached when RSP surpassed $100 billion in assets under management on August 19, following a period of over $12 billion in net inflows in 2026.
The difference in performance stems from the structural mechanics of the funds. A market-cap-weighted fund like IVV gives disproportionate influence to large constituents such as Nvidia and Microsoft. In contrast, RSP assigns nearly equal weight to all 500 companies, which insulates its performance when some of the largest names underperform relative to the broader market. This structure allows RSP to capture upside from smaller stocks that a cap-weighted fund would overlook.
A constraint exists regarding fund size; as RSP grows, liquidity in its smallest holdings becomes more difficult to manage. Furthermore, the divergence highlights the heavy concentration within the S&P 500, where technology’s performance disproportionately steers the cap-weighted index returns. While equal weighting offers a defensive posture against large-cap underperformance, it also exposes the fund's fate to the movements of key technology leaders like Nvidia, Microsoft, and Apple.
Full Take
The narrative of equal weighting succeeding the cap-weighted index reveals a tension between structural representation and market concentration. The core mechanism driving RSP's outperformance is decoupling portfolio performance from the volatility of mega-cap names, specifically those in technology. This suggests that when returns are overwhelmingly driven by a few giants, a method that smooths out idiosyncratic risk—equal weighting—offers a superior risk-adjusted exposure to the underlying index components.
The emergence of RSP’s success introduces an important structural challenge related to scale and liquidity. The milestone of $100 billion in assets under management signals that this strategy is attracting significant capital, which inherently increases the execution friction for smaller assets within the portfolio as they seek rebalancing. This poses a potential future stress point near $400 billion, indicating that achieving greater scale may introduce new constraints on the intended diversification benefits.
Furthermore, the observation regarding technology’s outsized influence suggests a pattern where cap-weighted indices act as a concentrated bet on sector performance. The gap between the S&P 500 and the Equal Weight Index demonstrates how sensitivity to a single sector (technology) can distort the overall index return. The crucial implication is that while equal weighting provides insulation from specific giant underperformance, it simultaneously subjects the portfolio’s success to the trajectory of those same giants. The system is not solved; instead, it has simply shifted the locus of risk from tracking market capitalization dominance to managing the exposure to sector-specific concentration and liquidity constraints as assets scale.
Bridge questions: If asset size were less of a constraint, how would this shift in performance between RSP and IVV change investor expectations regarding future technology sector risks? What institutional strategies might emerge if the liquidity challenge near $400 billion becomes more acute? What is the long-term relationship between index weighting methodologies and true risk diversification?
Sentinel — Human
The text is a well-structured financial analysis presenting balanced arguments about index fund performance by comparing market-cap weighting versus equal-weighting, grounded in expert commentary.