From Kiplinger · · 2m
S&P 500 Concentration Risk
S&P 500 ETFs spread risk by reducing tech dominance.
In brief
S&P 500 ETFs spread risk by reducing tech dominance. The Tema S&P 500 Historical Weight ETF (DSPY) and Invesco S&P 500 Revenue ETF (RWL) lower tech concentration in the S&P 500 while maintaining strong returns. Originally reported by Kiplinger.
S&P 500 Concentration Risk
The S&P 500 carries considerable concentration risk as of October 7 with tech stocks accounting for 40.2% of SPYM.
Tech Dominance in SPYM
Alphabet, Meta Platforms, and Netflix are classified as communication services stocks while Amazon and Tesla are consumer discretionary stocks.
Mega-Cap Concentration
SPYM's 10 largest positions accounted for 38.8% of the fund with all Magnificent 7 stocks represented.
Equal Weighting Strategy
The Invesco S&P 500 Equal Weight ETF (RSP) gives each S&P 500 constituent approximately the same starting weight at quarterly rebalances.
Historical Weight ETF
The Tema S&P 500 Historical Weight ETF Strategy (DSPY) uses historical average S&P 500 constituent weights to moderate unusually large concentrations.
DSPY's Portfolio Shift
DSPY has 7.8% less exposure to tech and 2.9% less to communication services compared with the S&P 500, with financial stocks receiving a 2.7% overweight.
Mega-Cap Weight Reduction
Mega-cap S&P stocks like Nvidia, Apple, and Microsoft have roughly half their conventional S&P 500 allocations in DSPY.
Revenue Weighting ETF
The Invesco S&P 500 Revenue ETF (RWL) reweights companies according to revenue with a 5% individual-stock cap and quarterly rebalancing.
RWL's Portfolio Shift
RWL has a 23.2% underweight to tech and 11.2% overweight to healthcare compared with the S&P 500.
Walmart's Revenue Impact
Walmart generates enormous sales from retail operations, becoming more prominent when ranked by revenue rather than market valuation.
DSPY Performance
For the one-year period through August 31, DSPY returned 21.8% at net asset value compared with 20.3% for SPYM.
RWL Performance
For the one-year period through August 31, RWL returned 25.3% at net asset value compared with 20.3% for SPYM.
The headline
The Tema S&P 500 Historical Weight ETF (DSPY) and Invesco S&P 500 Revenue ETF (RWL) lower tech concentration in the S&P 500 while maintaining strong returns.
