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.
Overview
Mega-cap tech stocks have gained significant value over the past few years, driven by AI enthusiasm. That's causing heavy concentration at the top for the Vanguard S&P 500 ETF (NYSEMKT: VOO), which tracks the S&P 500 through a market-cap-weighted approach. That's why, if the index gets too concentrated at the top, I'd choose the Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP), which, as the name implies, invests in the same 500 stocks, but with a roughly equal weighting to each one.
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The Vanguard S&P 500 ETF passively tracks the S&P 500 index. As companies grow in size, they have a higher weighting in the index. Currently, eight of its 10 largest holdings are tech-related stocks with meaningful AI investments. Its top ten holdings account for nearly 40% of the index, led by Nvidia at 7.6%. On the one hand, the high allocation to these fast-growing AI stocks has helped drive VOO's strong returns in recent years. It has delivered more than a 15% annualized total return over the past decade, well above the S&P 500's historical average return of around 10%. However, the S&P 500's top-ten weighting has doubled during that period, surpassing the dot-com bubble peak.
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Originally published at www.fool.com.