Equal-weight S&P 500 fund breaks $100 billion mark as advisors diversify

For the primary time since its 2003 launch, the Invesco S&P 500 Equal Weight ETF (RSP) has crossed $100 billion in belongings underneath administration, a milestone Invesco confirmed in an announcement on Sept. 1, 2026, after the fund topped the edge in mid-August. The fund has pulled in additional than $12 billion in internet inflows this 12 months, as buyers rotate away from the cap-weighted S&P 500 amid indicators that the artificial-intelligence-driven mega-cap rally is dropping steam. RSP, which assigns every of the index’s roughly 500 constituents an equal weighting as an alternative of sizing positions by market capitalization, has outperformed the normal benchmark by a number of proportion factors 12 months up to now, a spot that has reopened questions on how a lot focus danger advisors’ shoppers are carrying with out realizing it.

The prime 10 corporations within the S&P 500 now account for roughly 37% to 40% of the index’s complete weight, based on S&P Dow Jones Indices information — a stage of focus this newsroom has tracked as it climbed toward historic extremes. For advisors, the milestone is much less in regards to the fund itself than in regards to the dialog it is forcing with shoppers over how diversified their portfolios actually are.

Diversification adjustments danger, it does not erase it

Matthew Smart, chief funding officer at WWM Investments, stated he reminds shoppers that diversifying does not remove danger — it shifts which dangers they’re taking up. He factors to 2022, when many buyers assumed bonds would cushion their portfolios, solely to look at shares and bonds decline collectively.

“We need completely different streams of return and we wish to perceive precisely the place the portfolio’s exposures are coming from. Diversification is not about eliminating danger. It’s about ensuring the dangers you take are intentional,” Smart stated.

Smart stated he is inspired by the market’s broadening past the Magnificent Seven however is not treating it as a wholesale rotation away from mega-cap know-how. Earnings progress was terribly concentrated in these seven corporations in 2023, he famous, and has since unfold throughout extra sectors, with estimates persevering with to increase into 2027.

“We’re not attempting to name the top of mega-cap management. We’re attempting to verify a portfolio does not require mega-cap management to proceed to be able to succeed,” Smart stated.

On shopper conversations, Smart stated his method is dependent upon the shopper. For these anxious the AI trade is cooling, he factors out that the chance now extends nicely past the businesses which have already captured the majority of hyperscaler spending on chips, vitality and utilities.

“We are on the lookout for corporations that may use AI to materially cut back prices, enhance productiveness and scale their companies extra quickly. For shoppers who don’t notice how uncovered they’re, we glance via the portfolio moderately than simply on the fund names. A shopper can personal a number of completely different ETFs and nonetheless have vital overlap in the identical handful of mega-cap corporations. The danger is not essentially proudly owning the AI commerce. It’s proudly owning way more of it than you notice,” Smart stated.

Staying passive on equities, energetic in all places else

David Ellis, director of investments at EverPar Advisors, stated he stays passive on the general public fairness aspect, comfy proudly owning the market as it’s moderately than guessing when to shift weightings. But he added that the S&P 500 isn’t the entire portfolio.

“Diversification for us occurs exterior that publicity in positions with completely different return drivers and completely different danger profiles. So when focus builds on the prime of the index, our shoppers aren’t counting on that piece alone to hold the plan,” Ellis stated.

Asked whether or not this 12 months’s equal-weight outperformance is a sturdy shift or a brief pullback in mega-cap management, Ellis stated he does not know — and builds portfolios so he does not should.

“Equal weight trailed cap weight for a lot of the decade earlier than this one, so eight months of higher efficiency shouldn’t be the proof I might need earlier than making a structural change. What we’re doing is rebalancing, which on this market means trimming what has run and including to what has not. That is a self-discipline moderately than a forecast,” Ellis stated. “You do not usually get thanked for diversifying through the run itself — it comes afterwards.”

Rotation is wholesome, not a motive to desert AI

Seth Hickle, chief funding officer at Mindset Wealth Management, stated the largest false impression is that proudly owning the S&P 500 robotically means being diversified, since cap-weighted indexes have a tendency at hand buyers extra of no matter has already rallied hardest — a dynamic this analysis of diversification beyond market-cap-weighted benchmarks has flagged as a rising blind spot for retail portfolios.

“When placing new cash to work just lately we now have been extra intentional about on the lookout for broader and thematic publicity moderately than merely including new cash to yesterday’s winners,” Hickle stated.

Hickle stated he views the rotation as an indication of a wholesome bull market moderately than the top of the earlier management cycle. “Leadership taking a breather shouldn’t be the identical factor as management being damaged. If this bull market goes to have endurance, we have to see different shares get off the bench and assist with the heavy lifting,” Hickle stated.

For shoppers anxious a few cooling AI commerce, Hickle stated the message is one in every of addition, not subtraction. “A pullback in market management does not invalidate the long-term funding theme. You do not should abandon AI to diversify away from AI. You can stay invested within the theme whereas ensuring the remainder of the portfolio has a chance to take part,” Hickle stated.