S&P Equal Weight ETF is Lagging
By Arthur B. Hill - Wed 09-Jan-08 8:07 AM EST
A good way to compare the performance of small-caps versus large-caps is with the S&P 500 ETF (SPY) and the S&P 500 Equal Weight ETF (RSP). Each ETF consists of the same 500 stocks. SPY is weighed according to market cap and favors large-caps (top 100), while RSP is equal weighted and favors the other 400 stocks (mid-caps and small-caps). Yes, the S&P 500 has many small-caps. The largest holding in the Russell 2000 ETF (IWM) is Holigic (HOLX) with a market cap of 8.54 billion. Teradyne (TER) is part of the S&P 500 and has a market cap of just 1.56 billion, which is considerably smaller than Holigic. Everything is not quite as it seems.
The two charts above shows RSP, SPY and their price relatives, which compare the two ETFs. Notice that RSP broke its November low on Friday, which was three days earlier than SPY. This shows relative weakness. The price relative on the RSP chart shows the performance versus SPY. The line is clearly trending down and RSP is relatively weak. This is not a good sign for small-caps or the market as a whole.
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S&P 500 Equal Weight ETF (RSP)
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