RSP vs SPY: Why These S&P 500 ETFs Have Such Different Returns Over the Past 20 Years
Disruptive innovation has made stocks a winning asset class over time, and a top-heavy index has helped accelerate long-term wealth creation for investors.
A funny thing happened to the bull market that was supposedly driven by only a handful of stocks. The S&P 500 is actually lagging its equal-weight counterpart through the first eight months of 2026.
The S&P 500, with dividends reinvested, is up 13% year to date through August 28. The main benchmark for U.S. equities is, of course, weighted by market capitalization, meaning that larger stocks have more influence on the direction of the index than smaller ones.
The 10 largest names in the S&P 500 — Nvidia (NVDA), Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet Class A (GOOGL), Broadcom (AVGO), Alphabet Class C (GOOG), Meta Platforms (META), Micron Technology (MU) and Tesla (TSLA) – have a collective weight of 37%.
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Put another way, this murderers' row of mostly tech and communication services stocks accounts for nearly 40% of the benchmark's total value.
Meanwhile, the S&P 500 Equal Weight Index, in which each constituent has a 0.2% weighting, is up more than 16% so far this year. That's historically unusual, but if it helps folks stop worrying about a top-heavy market, great.
Narrow breadth, in which a relatively low number of stocks do the most heavy lifting, is the norm. Furthermore, as bull markets mature, breadth tends to widen. A rising tide lifts all boats, some faster than others, and eventually investors rotate into sectors that appear to offer better rewards for the risks they're taking.
More importantly, "narrow" breadth is how markets have historically generated the majority of their returns.
The 80-20 Rule — also known as the Pareto Principle — is the observation that 20% of the stocks you buy or the movies you produce or the books you publish tend to generate 80% of your returns or revenue.
If anything, when it comes to equities, the Pareto Principle greatly understates this phenomenon. Research by Hendrik Bessembinder, a finance professor at the W.P. Carey School of Business at Arizona State University, found that if it weren't for narrow breadth, we wouldn't really have any returns at all.
"When stated in terms of lifetime dollar wealth creation," Bessembinder writes, "the best-performing 4% of listed companies explains the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills."
In the long run, innovation and creative destruction are what make equities a winning asset class for patient, diversified investors. That's even more true in the digital age, where software and silicon scale faster than old economy endeavors.
From 1990 to 2020, just 1% to 2% of public companies generated all the shareholder value in global and U.S. stock markets, notes Nicholas Colas, co-founder of DataTrek, citing Bessembinder's research.
"Most were tech names because the market had real trouble accurately discounting the real-world implications of Moore's Law (semiconductor compute per dollar doubled roughly every two years)," Colas writes. "Since 2023, the power of AI has more than doubled every year. If that continues for the next five years, AI will be more than 3,000 times more capable than today. This is why global Big Tech is all-in on the technology: not for today's models, but those in 2031."
It also suggests that the S&P 500 will retake its traditional lead over its equal-weight sibling.
"Both versions of the S&P 500 used to trade very similarly, but their price return correlation has dropped a lot in the 2020s," Colas adds. "The link is still strong when macro fears dominate, but it is much weaker when investor confidence is strong."
The bottom line on RSP vs SPY
All of which brings us to how important tech has been to the S&P 500 over the past two decades. Have a look at the chart below, and you'll see that despite this year's results so far, Big Tech has been a winner for the cap-weighted version of the index.
If, 20 years ago, you put $1,000 into the SPDR S&P 500 ETF Trust (SPY), which tracks the cap-weighted S&P 500, you would today have almost $8,600. That's a gain of more than 750%.
If you put the same sum into the Invesco S&P 500 Equal Weight ETF (RSP), you'd have less than $7,500 today — a gain of less than 650%.
Notice how the SPY's outperformance vs RSP widened substantially over the past few years. As Colas notes above, that's mostly due to the AI story — and strong investor confidence shrugging off macro uncertainty.
True, the equal-weight index casts a wider net, capturing gains from tomorrow's winners before they command larger weights. A cap-weighted index, on the other hand, simply lets its winners run.
For long-term investors, history suggests fighting a cap-weighted index — and the Big Tech AI revolution driving it — is a poor proposition.
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