Heavy Lift: S&P 500’s Biggest Stocks Carrying the Rest

ETFs to watch as the index’s top 10 equities make up 90% of gains this year.

Perhaps the most misleading aspect of analyzing the broader U.S. stock market in 2023 is the historic degree to which a small number of stocks have dominated the performance charts. This has led investors to assume that “the stock market” is doing OK, when in fact, much of it is not.  

As Motley Fool recently noted, 90% of this year’s S&P 500 return has been driven by just the top 10 stocks. That’s a record, and a sign that the market’s health is in question.  

If you own an S&P 500 index fund that weights its holdings based on market cap (as the vast majority do), you are pleased with a 9% year-to-date return as we approach Memorial Day. But that could be a false sense of security, given what’s going on underneath. 

Here’s a set of exchange-traded funds that can help investors quickly and easily segment the S&P 500 by size, to see just how top-heavy the market's performance is.  

SPDR S&P 500 ETF Trust (SPY) 

Perhaps the best known ETF, this one doesn’t need much of an introduction. This giant fund recently hit its 30-year anniversary, and represents the “classic” capitalization-weighted S&P 500. It is up 9% year to date through last Friday. 

iShares S&P 100 ETF (OEF) 

This ETF removes all but the 100 largest stocks in the S&P 500, so it puts a premium on “mega-cap” companies. It has gained nearly 14% this year, a strong indication that the larger stocks are carrying the load. 

Invesco S&P 500 Top 50 ETF (XLG) 

This is where the evidence becomes irrefutable for the “narrow market” case. This ETF limits its holdings to just the 50 largest stocks. How much is it up this year? More than 26%! So, the math of limited winners amid a generally stagnant market is borne out here. After all, if 50 stocks are up this much, and the full index is up 9%, the other 450 are detracting pretty seriously from performance.  

Invesco S&P 500 Equal Weight ETF (RSP) 

As noted earlier, the average S&P 500 component is up only about 1% this year. That’s reflected by the performance of this ETF, which holds all 500 stocks, but with each company accounting for just 0.2% of the index weight at each rebalancing date. Compare that to the 3%-7% weightings of some of the largest components, and it is like the S&P 500 has a split personality, depending on how you weight it. 

Arrow Reverse Cap 500 ETF (YPS) 

This unique but tiny ($13 million in assets) ETF takes the S&P 500 weightings and reverses them. In other words, the biggest stocks get the lowest weightings and vice versa. So, YPS, which is SPY backwards, really offers a mirror image look of the S&P 500, yet with all stocks still held. To no one’s surprise in a year like 2023 so far, YPS has not performed well, down just under 1% through last Friday. 

These five ETFs all provide a different look at the same thing: the S&P 500. It’s like when you go to your favorite burrito place: The ingredients are the same, but you can create a wide variety of meals out of them.  

For investors, this narrow-market phenomenon has a history of appearing in the latter stages of market cycles, prior to major declines. That history alone should encourage investors to look at the many faces of the S&P 500 as the year continues.