The S&P 500 Is Doing Something It Hasn't Done in Decades. This ETF Could Be the Smarter Buy Right Now.

The S&P 500 (SNPINDEX: ^GSPC) is having another strong year. But something unusual is happening underneath the surface.

The megacap companies aren't leading the way higher.

Year to date, the index is up nearly 13% on a total return basis. But the equal-weight version of the index has gained more than 14%.

That's a big change from the past few years, in which the big technology stocks usually delivered the largest returns. Some investors finally appear to be getting something they've been waiting for -- a broader market rally in which more segments are participating.

If this continues, there could be a better way to invest in the S&P 500 right now.

Image source: Getty Images.

The other 493 S&P 500 stocks are starting to matter again

The traditional S&P 500 index is weighted by market cap. Tech companies like Nvidia, Alphabet, and Microsoft, which have seen huge rallies thanks to the artificial intelligence (AI) boom, have had greater influence over the index than at almost any point in history.

The Vanguard S&P 500 ETF (NYSEMKT: VOO) currently has around 37% of assets invested in the tech sector. That's easily the highest percentage since at least 1990, even higher than during the tech bubble peak of around 33%.

With the market showing signs of a rotation, it may be time to consider reducing some of that high-tech exposure.

The S&P 500 Equal Weight index owns those same companies but resets each stock's allocation to approximately 0.2% at each quarterly rebalancing.

Surprisingly, this approach has worked. Since the beginning of 1990, the equal-weight index has outperformed the traditional S&P 500 by 4,940% to 4,410%. That even includes the recent years of the AI boom.

Here's the ETF I'd buy instead

The Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP) tracks the equal-weight index and charges an expense ratio of 0.20%.

If the Vanguard S&P 500 ETF is the core of your portfolio, I wouldn't consider making a massive switch from one ETF to the other. But if you believe this market broadening will continue, you can shift some money to the equal-weight S&P 500 or simply direct new investments into it as well.

It's important to remember that the S&P 500 and the equal-weight S&P 500 look like two very different portfolios. In the Invesco S&P 500 Equal Weight ETF, tech still accounts for 15% of the portfolio, but it's just one of five sectors that get an allocation of at least 9%.

That kind of diversification can be very useful, especially if megacap tech is going to yield leadership into the future.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.