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@media (max-width: 768px) { .etf-action-report .etf-grid { grid-template-columns: 1fr; } } ## The Hidden Driver of Factor Outperformance: Company Size Let’s be clear upfront: factor investing absolutely matters. However, when you apply a factor screen, you are typically reweighting securities based on those specific characteristics rather than their raw market capitalization. Over the last decade, as mega-cap stocks have relentlessly driven broad market returns, this structural shift away from market-cap weighting has created a massive hurdle for traditional factor strategies. The core dynamic is straightforward. When the absolute largest companies in the benchmark are the top performers, it becomes next to impossible for any strategy to keep pace—let alone outperform—unless it holds those mega-caps in at least an equal weight to the parent index. But what happens when that decade-long mega-cap dominance takes a breather? Looking at popular S&P 500 factor ETFs year-to-date, we can see a striking trend. All but two of these factor strategies are currently outperforming the broad-market SPY—in many cases, by a wide margin. When we look under the hood to find the common thread, market capitalization stands out glaringly. Furthermore, while lower valuations (P/E) have certainly provided a tailwind for value-oriented funds, the implementation method—specifically how these funds weight their constituents—reveals that moving away from market-cap weighting is the real engine of this size shift. TickerFund NameImplementationYTD TR %Top 10%Wtd. Avg. Market Cap ($M)P/E (NTM)**SPYD**State Street SPDR Portfolio S&P 500 High Dividend ETFEqual Weighted10.9613.9549,27114.81**SPHD**Invesco S&P 500 High Dividend Low Volatility ETFScored10.1428.7468,73413.96**NOBL**ProShares S&P 500 Dividend Aristocrats ETFEqual Weighted10.1116.04118,72319.19**QVMT**Invesco S&P 500 Concentrated QVM ETFScored8.9942.09477,92019.70**SPLV**Invesco S&P 500 Low Volatility ETFScored8.7712.77101,82021.59**RPV**Invesco S&P 500 Pure Value ETFScored8.7419.2448,15712.12**SPHQ**Invesco S&P 500 Quality ETFScored7.8540.74390,08822.10**RSP**Invesco S&P 500 Equal Weight ETFEqual Weighted7.003.20120,51318.01**RPG**Invesco S&P 500 Pure Growth ETFScored6.7627.00374,86123.01**SPVM**Invesco S&P 500 Value with Momentum ETFScored6.3831.26128,82014.15**RWL**Invesco S&P 500 Revenue ETFRevenue5.7423.44523,77617.13**SPHB**Invesco S&P 500 High Beta ETFScored5.2414.06229,31918.51**SPYV**State Street SPDR Portfolio S&P 500 Value ETFMarket Cap4.7422.72534,52219.19**SPY**State Street SPDR S&P 500 ETF (Benchmark)Market Cap0.6036.421,277,68821.38**SPMO**Invesco S&P 500 Momentum ETFScored0.1350.59866,78921.74**SPYG**State Street SPDR Portfolio S&P 500 Growth ETFMarket Cap-2.9359.891,972,13124.00### The Mega-Cap Drag Notice the bottom of the table. The benchmark (**SPY**) is barely positive at 0.60%, sporting a massive weighted average market cap of over $1.27 Trillion. The only two funds underperforming or barely keeping pace are Momentum (**SPMO**) and Growth (**SPYG**). They both carry staggering average market caps of $866 Billion and $1.97 Trillion, respectively, driven heavily by their reliance on market-cap weighting or implementation approaches that mimic those constraints. ### Valuation vs. Size Conversely, look at the top performers. While funds like **SPYD**, **SPHD**, and **RPV** do sport attractive NTM P/E ratios (under 15x), their defining trait isn’t just cheapness—it’s their implementation. By using Equal Weighted or Scored methodologies, they forcefully break the market-cap mold, resulting in vastly lower average market caps between $48 Billion and $68 Billion. To truly drive this point home, consider the historical relationship between the S&P 500 Equal Weight ETF (RSP) and the standard market-cap weighted SPY. The chart below clearly illustrates the inflection point: as the weight of the top 10% of SPY constituents began its dramatic ascent, market-cap weighting’s outperformance accelerated in tandem.  My point here is not to suggest that factors don’t matter. They certainly do. Rather, the data illustrates a structural reality: when a strategy weights securities by factor traits instead of size, it inherently dilutes its exposure to the market’s largest names. If the size factor is running hot—as it has for the better part of a decade—you can generally forget about a factor strategy keeping up with the broad benchmark unless that strategy also happens to heavily overweight those same mega-cap leaders. When evaluating factor strategies, recognizing how far a portfolio deviates from the mega-cap concentration of the core benchmark is essential for setting realistic performance expectations. Disclosures: This material is for informational purposes only and should not be considered investment advice. All investments, including ETFs, involve risk, including the possible loss of principal. This analysis was developed by the team at ETF Action. We leverage advanced AI tools to assist in the drafting and refinement of our content, based on our expert prompts, direction, and final review. [](/authors/etf-action) [By ETF Action](/authors/etf-action) Mar 02, 2026 Edited by: ETF.com Staff [ + Follow ](/etf/login) Share Email LinkedIn Facebook X (Twitter) googletag.cmd.push(function() { googletag.display('js-dfp-tag-article_page_302x26'); }); Loading Let’s be clear upfront: factor investing absolutely matters. However, when you apply a factor screen, you are typically reweighting securities based on those specific characteristics rather than their raw market capitalization. Over the last decade, as mega-cap stocks have relentlessly driven broad market returns, this structural shift away from market-cap weighting has created a massive hurdle… [Source](https://www.etfaction.com/mega-cap-drag-how-market-capitalization-is-dictating-factor-returns/?utm_source=etf_com&utm_medium=syndication&utm_campaign=research&utm_content=mega-cap-drag-how-market-capitalization-is-dictating-factor-returns) [ + Follow ](/etf/login) [ ETF Action ](/authors/etf-action) ETF Action is a leading independent research and technology platform designed to empower financial advisors with actionable market intelligence. We… [View Bio](/authors/etf-action) Related Topics [S&P 500](http://www.etf.com/topics/sp-500)