The Vanguard S&P 500 ETF (VOO) is widely held by investors. The S&P 500 Index has generated total returns of nearly 695% over the past two decades.
However, the index now carries a significant technology concentration. Nvidia, Apple, and Microsoft together account for over 20% of the Vanguard ETF's portfolio. Their combined market capitalization exceeds $11 trillion.
Technology stocks are known for high returns but also for volatility. Nvidia's stock price increased by nearly 1,000% in the last three years alone. This concentration means the ETF's performance is heavily influenced by a few large companies.
The Invesco Equal Weight S&P 500 ETF (RSP) provides a different approach. It tracks the same index but assigns each stock an approximately equal weight in the portfolio.
This structure limits the impact of any single stock or industry. Tech giants hold the same weight as more stable companies within the S&P 500. It can reduce risk but may also cap potential earnings compared to market-cap-weighted funds.
Over the last ten years, the Vanguard ETF significantly outperformed the Invesco ETF. Much of this gain occurred in recent years as tech stocks surged. Before 2020, their performance was more closely aligned.
During the 2022 bear market, the Vanguard fund experienced steep declines. Its returns nearly fell below those of the Invesco fund at times. Market-cap-weighted funds are more susceptible to downturns in tech sectors.
Investor choice depends on risk tolerance and objectives. The Vanguard ETF suits those seeking tech-heavy growth with broad S&P 500 exposure. The Invesco ETF may appeal to investors aiming to minimize volatility.
The Motley Fool Stock Advisor team recently listed ten stocks they consider better buys than the Invesco Equal Weight ETF. They highlighted past recommendations like Netflix and Nvidia, which generated substantial returns for investors.
Stock Advisor reports a total average return of 955%, compared to 196% for the S&P 500. Katie Brockman holds positions in the Vanguard S&P 500 ETF. The Motley Fool holds positions in and recommends Apple, Microsoft, Nvidia, and the Vanguard S&P 500 ETF.