This Is My No. 1 Recommended ETF to Buy in July
Key Points
The S&P 500 has become more top-heavy than it has historically been.
An equal-weight S&P 500 ETF spreads your investment relatively evenly across all S&P 500 companies.
The tech sector accounts for over 38% of the S&P 500, versus just over 15% in the equal-weight S&P 500.
- 10 stocks we like better than Invesco S&P 500 Equal Weight ETF ›
A great way to invest in the stock market is via the S&P 500 (SNPINDEX: ^GSPC), because it's akin to investing in the broader U.S. economy. They don't mirror each other perfectly, but they have historically grown together over time.
Buying into an S&P 500 exchange-traded fund (ETF) has long been the standard for passive investing, but it's not the only way to buy into the index. You can also invest in an equal-weight S&P 500 ETF like the Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP). As the name implies, it's an S&P 500 ETF that gives roughly equal weight to every company in the index (with slight differences), rather than weighting companies by market cap like the standard S&P 500.
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Image source: Getty Images.
The current S&P 500 looks much different than it has historically been
One issue many investors have with the S&P 500 right now is how concentrated it has become. Two companies, Nvidia and Apple, account for more than 14% of the 500-plus-company index; the "Magnificent Seven" stocks account for nearly 32%; and the tech sector makes up 38% -- and that's without counting companies like Amazon, Alphabet, and Meta Platforms, which are technically in different sectors.
RSP, on the other hand, looks much different. Here are its top 10 holdings:
| Company | Percentage of the ETF |
|---|---|
| PayPal | 0.27% |
| Bio-Techne | 0.26% |
| Palo Alto Networks | 0.25% |
| Moderna | 0.25% |
| Global Payments | 0.25% |
| GE Vernova | 0.24% |
| DoorDash | 0.24% |
| Robinhood Markets | 0.24% |
| Valero Energy | 0.24% |
| Travelers Companies | 0.24% |
Data source: Invesco. Percentages as of July 21.
Over the past few years, the concentration has worked well for the S&P 500 because the top players were on a run. That isn't necessarily the case right now, though. Diversification outside of the megacap tech stocks has proven to be a good route recently. So far this year, RSP is outperforming the S&P 500.
Right now, I appreciate RSP not being so tech-heavy and having much more representation in sectors like industrials, utilities, and healthcare.
| Sector | S&P 500 Weight | RSP Weight |
|---|---|---|
| Information technology | 38.20% | 15.18% |
| Financials | 11.60% | 15.10% |
| Communication services | 9.70% | 3.76% |
| Consumer discretionary | 9.30% | 9.45% |
| Health care | 8.90% | 11.98% |
| Industrials | 8.80% | 16.77% |
| Consumer staples | 4.60% | 6.51% |
| Energy | 3.00% | 3.84% |
| Utilities | 2.20% | 6.27% |
| Materials | 1.80% | 5.24% |
| Real estate | 1.80% | 5.92% |
Data source: Vanguard and Invesco. Percentages as of June 30.
A supplement, not a complete replacement
I wouldn't use RSP as a standard replacement for the S&P 500. I still think there's value in weighting the index by market cap, and that's the better long-term approach. However, I think RSP is a good complementary piece to balance out the tech concentration risk right now.
Yes, the companies are the same, but because of weight differences, the overlap won't be that significant if you own both RSP and an S&P 500 ETF.
I wouldn't be surprised if it outperforms the S&P 500 to finish out the year, and that makes it a good buy in July.
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Stefon Walters has positions in Apple. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, DoorDash, GE Vernova, Meta Platforms, Moderna, Nvidia, and PayPal. The Motley Fool recommends Palo Alto Networks and recommends the following options: short September 2026 $47.50 calls on PayPal. The Motley Fool has a disclosure policy.
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