Barron’s writer Allan Sloan coined the phrase “skinny bull” in this article, where he describes how seven stocks — Apple, MIcrosoft, Nvidia, Alphabet, Amazon, Meta, and Tesla — are carrying the rest of the S&P 500.
I decided to see how the index was performing against its “equal weight” version, where the 500 stocks are ranked equally instead of by their market capitalization.
In the equal weight strategy, each stock is one-five-hundredth or 0.20% of the index. By contrast, in the plain, capitalization-weighted S&P 500, Apple and Microsoft are more than 7% and 6%, respectively, of the index currently.
I rolled returns monthly for five-month periods for the last 20 years, and found that the plain S&P 500 (capitalization weighted) had never outperformed the equal weighted index (represented by the Invesco S&P 500 Equal Weight ETF, ticker: RSP) by as much as it has from January through May of this year – around 10 percentage points.
Reducing the weight of the largest stocks has led to much lower performance.
It’s hard for anyone to know when that trend might reverse, but it’s notable how extremely lopsided the returns of stocks in the index are.
