Earlier this month we passed on Spencer Jakab's warning. The S&P 500 sat near a record while two of every three stocks in it sagged. The weekend paper's ETF table adds a twist. The equal-weight version of the index, RSP, is up 13.0% this year. The regular one, SPY, is up 11.4%. The quiet twin is winning.
Here's the difference in plain terms. The regular S&P 500 gives each company a weight based on its size. The ten biggest names take up a big share of every dollar. The equal-weight version puts the same money in all 500. A small insurer counts as much as Apple. When the giants run, the regular index wins. When the rest of the market does the work, equal weight wins. This year the rest of the market has done the work. The Russell 2000 of small stocks rose 2.00% for the week while the S&P 500 fell 0.47%.
It cuts both ways. On Friday RSP fell 0.77% and SPY fell 0.52%. Equal weight leans more on industrial and cyclical names, the companies that rise and fall with the economy. The Dow, which is heavy with those, led the market down that day, off 1.23%. On the NYSE, 1,701 stocks fell and 990 rose. So the equal-weight fund can have rougher days when the broad market sells off. It's a different ride, and this year a better one. The table shows where the money went. Energy (XLE) is up 55.1%. Chips (SMH) are up 46.4%. Gold (IAU) is down 7.4% and silver (SLV) 24.4%. Long Treasurys (TLT) are down 6.7%.
What the desk did, and didn't do
On Oct. 17 the first third of the North Star's new money went in, ahead of the level we'd written down. Equal weight went in first, then the power builders we already held, then a small slice of Micron. That's done, and it's old news. RSP is now held at weight in 9 books. Nothing was added this week. The other two thirds wait for the lower level we wrote down and the week of Nov. 3. The S&P 500 closed Friday at 7,623.68. It's off its 7,818.93 record from Oct. 6, and it hasn't reached our next line.
Our read
This is Investments/Risk, IN04. The equal-weight sleeve exists so that not every index dollar rides the same ten names. Jakab's point earlier this month was about the gap. Since late 2022 the regular index had run far ahead of equal weight, by his count. This year's table is a small turn the other way, 13.0% to 11.4%. We don't read it as a signal. We read it as the sleeve doing its job. It lags in a giants' year and catches up in a broad one. RSP is held at weight in 9 books, nothing added. We'd say the same about XLE in 8 books and IAU in 46. The gold slice is down 7.4% this year and is still a hedge. A hedge that only went up wouldn't be one.
Your connection is the stock index fund in your 401(k). Most plans offer one S&P 500 fund and call it the market. This week, open your plan's fund list and look for an equal-weight, mid-cap or small-cap index choice. If every stock fund on the menu weights by size, every dollar you have there rides the same ten names. That's fine if you chose it. It's worth a review if you didn't. You don't check the spare tire on the side of the road. You check it in the driveway.