Funds that track the S&P 500 don't spread money evenly across its 500 members — they weight by size, so a handful of mega-cap tech names carry most of the weight. Nine holdings recently made up more than a third of the total weighting, while some other companies in the index were weighted at 0.1% or less. An equal-weight ETF offers an alternative for investors who want even exposure.
Buying an index fund built on the S&P 500, such as the Vanguard S&P 500 ETF (VOO), turns a single purchase into part ownership of the 500 biggest companies in America, which together account for about 80% of the U.S. stock market's value. That instant diversification is the pitch. The tradeoff sits in how the index is built.
A market-cap-weighted index rewards size
The S&P 500 is market-cap weighted, so the largest constituents carry the most influence over its returns. Nvidia, Apple, Microsoft, Amazon.com, Alphabet, Broadcom, Micron Technology, Meta Platforms and Tesla — nine names once Alphabet's two share classes are counted — recently made up more than a third of the entire index. The top three alone accounted for 18% of that weighting.
Morningstar data cited in the report puts Nvidia's weighting in the Vanguard S&P 500 ETF at 7.50%, Apple's at 6.58% and Microsoft's at 4.29%, as of June 30, 2026. Nike and PayPal sit in the same index, yet each was recently weighted at less than 0.1%. Lululemon Athletica and Hasbro stood even lower, at just 0.02%.
An equal-weight alternative exists
Investors uneasy with that concentration can turn to the Invesco S&P 500 Equal Weight ETF (RSP). It holds the same 500 companies but weights each one equally and rebalances quarterly, spreading exposure instead of concentrating it in the largest names.
Neither approach rules out the other on valuation grounds. The S&P 500 has averaged returns close to 10% a year over long periods, ignoring inflation. Even so, the index seems more overvalued than undervalued right now.
Source: The Motley Fool
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