Quick Read
-
The 10 largest S&P 500 companies now control 38% of the index, leaving investors far less diversified than the fund's name suggests.
-
RSP's equal-weight approach returned 13% through July 2026 versus the S&P 500's 9%, spreading risk evenly across all 500 holdings at just 0.20%.
-
AVUV's small-cap value strategy delivered a 24% NAV return through July 2026, dramatically outpacing the mega-cap-heavy index it was built to complement.
-
Don't wait: the analyst who called NVIDIA in 2010 just revealed his top 10 AI stocks. See the full list FREE now .
The S&P 500 technically owns 500 leading U.S. companies. In practice, an increasingly large portion of every dollar invested in the index is riding on just a handful of them. The 10 largest companies now account for roughly 38% of the benchmark, with Nvidia, Apple, Alphabet, Microsoft, Amazon, Broadcom, and Meta doing a lot of the heavy lifting.
The concentration has worked beautifully while mega-cap technology stocks have led the market, but It also means investors buying an S&P 500 fund are getting considerably less diversification than the name initially suggests.
Selling the S&P 500 entirely is likely an overreaction. These companies have become enormous because their earnings and cash flows largely justify the enormous market values. However, for investors concerned about putting nearly 40 cents of every dollar into roughly 10 businesses, there are several ways to spread that exposure around. The Invesco S&P 500 Equal Weight ETF( NYSEARCA:RSP ), Invesco S&P MidCap Quality ETF( NYSEARCA:XMHQ ), and Avantis U.S. Small Cap Value ETF( NYSEARCA:AVUV ) address the concentration problem from three different angles.
RSP Owns the S&P 500 Without Letting the Giants Take Over
RSP offers the simplest solution because investors do not need to abandon the S&P 500 companies they already own. The fund tracks an equal-weight version of the index, giving each constituent approximately the same allocation when the portfolio is rebalanced quarterly. Instead of Nvidia or Apple carrying a weight measured in several percentage points, every company begins each rebalance at roughly 0.2%.
Don't wait:the analyst who called NVIDIA in 2010 just revealed his top 10 AI stocks. See the full list FREE now .
That notably changes what drives returns. A rally in industrials, financials, healthcare companies, or other less dominant S&P 500 names can meaningfully move RSP even when the mega-cap technology companies stall. The trade-off: RSP will generally lag the traditional market-cap-weighted index when its largest companies are leading the market.
That has still not prevented equal weighting from participating in 2026's rally. RSP returned roughly 13.2% through July 31, compared with a 9.4% price gain for the S&P 500 over the same period. The fund charges a 0.20% expense ratio, making it one of the best options for investors who still want large-cap U.S. exposure but do not want portfolio performance dictated by the same handful of companies.
XMHQ Moves Down the Market-Cap Ladder Without Sacrificing Quality
XMHQ goes one step further. Instead of redistributing money among S&P 500 stocks, it moves outside the index entirely and targets approximately 80 companies from the S&P MidCap 400 with strong quality characteristics. The underlying index evaluates companies using profitability, balance-sheet strength, and earnings-quality measures before building the portfolio.
The screening process is important because simply buying smaller companies can introduce businesses with weaker finances and more sensitivity to economic downturns. XMHQ attempts to avoid some of that problem by starting with mid-caps and then filtering for quality.
The result is an exposure largely missing from today's mega-cap-heavy S&P 500. XMHQ returned roughly 12.5% through July 31 and has historically produced strong long-term results relative to the broader mid-cap benchmark. Its management fee is 0.25%.
AVUV Goes Where the S&P 500 Barely Reaches
AVUV takes yet another approach to diversification. The actively managed ETF focuses on U.S. small-cap companies trading at relatively low valuations while emphasizing businesses with stronger profitability. Rather than owning the companies dominating today's index, AVUV searches the opposite end of the market for stocks where valuations and expected returns may be more attractive.
That comes with considerably more volatility. Small companies typically have less financial flexibility than mega-caps, and value stocks can remain cheap for long periods. AVUV is therefore not a direct substitute for an S&P 500 core holding.
It has, however, demonstrated why diversification matters. AVUV's NAV total return reached 23.61% through July 31, 2026, substantially ahead of the S&P 500's price return over that period. The fund charges 0.25% annually.
You Don't Have to Bet Against Big Tech
The case for RSP, XMHQ, and AVUV is not that Nvidia, Apple, Microsoft, or the other mega-caps are inherently bad. Rather, the argument is directed to the importance of diversification. It is that investors no longer need those stocks to occupy nearly 40% of their U.S. equity exposure.
RSP spreads the S&P 500 more evenly. XMHQ moves into financially stronger mid-sized companies. AVUV adds a small-cap value exposure almost completely absent from the top of the market. Used alongside a traditional S&P 500 fund, the three can turn a portfolio increasingly dependent on 10 enormous companies back into something that looks much closer to genuine diversification.
Don't wait:the analyst who called NVIDIA in 2010 just revealed his top 10 AI stocks. See the full list FREE now .
Contact editorial@247wallst.com for any questions or corrections.
