VOO vs. RSP: If AI Stocks Get Too Concentrated, Here's Which One I'd Choose
These ETFs both hold S&P 500 members but with very different allocations.
Over the past few years, mega-cap tech stocks have surged in value, fueled by enthusiasm surrounding artificial intelligence. This has led to an excessive concentration of assets at the top of the market for the Vanguard S&P 500 ETF (VVV), which follows the S&P 500 using a market-cap weighted strategy. Because of this, if the index becomes overly concentrated at the top, I would opt for the Invesco S&P 500 Equal Weight ETF (RSP) instead.
As its name suggests, RSP invests in the same 500 stocks but assigns roughly equal weight to each one.
The Vanguard S&P 500 ETF mirrors the constituents and performance of the S&P 500 index. As companies expand in size, they gain a larger weighting within the index. Currently, eight of the ETF's ten largest holdings are tech-related companies with significant investments in AI. The top ten holdings make up nearly 40% of the index, with Nvidia leading the pack at 7.6%.
While the heavy allocation to these rapidly growing AI stocks has contributed to VOO's impressive returns, it has also increased the S&P 500's top ten weighting, which has doubled over the past decade and now exceeds the dot-com bubble peak.
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