JQUA - RSP: Equal Weighting The S&P 500 To Minimize Magnificent Seven Exposure Is Not Optimal
2024-02-24 05:35:36 ET
Summary
- RSP solves diversification issues with the S&P 500 Index by equal weighting its constituents. Total returns since May 2003 are excellent, though the ETF has lagged over the last decade.
- Investors looking to lower Magnificent Seven exposure might turn to RSP. However, the way the Index is structured means that approach sacrifices substantial quality and growth.
- This article breaks down numerous profitability metrics for the S&P 500 Index's top sub-industries, demonstrating how RSP's composition is not favorable.
- As a solution, I'll highlight an ETF that has only 11% exposure to Magnificent Seven stocks but features all the solid fundamentals that make SPY such a great long-term hold.
- Due to this alternative and my preference for buying high-quality stocks, I rate RSP a "sell".