Exploring the RSP Mid-Cap Accusations

by on September 29, 2014

The S&P Equal Weight ETF (RSP) hit markets in 2003 and offered a unique spin on investing in the S&P 500. Its equal weight approach to the famed index quickly garnered attention as it outperformed the likes of SPY over a number of periods. As time has gone on, many have speculated (and even accused), that RSP’s portfolio is nothing more than a flashy mid-cap fund, as its performance has been eerily close to other funds of that nature [for more ETF news and analysis subscribe to our free ETF Daily Roundup].

We decided to take a closer look as RSP and compare it to a mid-cap product to see the similarities and differences between the two products. The fund we chose was the Core S&P Mid-Cap ETF (IJH), which is by far the largest and most popular mid-cap ETF in the world.


Let’s start off with the basics. RSP invests in the S&P 500, granting an equal weight to all of its constituents. IJH, on the other hand, invests in the S&P MidCap 400 Index. The two funds have exactly zero holdings in common. Based on that fact, one would likely assume that their performances would be quite different, but that is not the case. Take a look at this chart that juxtaposes these two funds over the last five years:

RSP vs IJHThe two ETFs performed in near lock-step with each other despite tracking a completely different set of holdings. So what gives? The answer becomes a bit clearer when we add the iShares S&P 100 ETF (OEF) into the equation. OEF invests in the 100 largest companies by market cap in the U.S., making it specifically a large-cap focused fund:

RSP vs. OEFClearly, RSP and IJH pull away from their large cap counterpart, as each of their strategies specifically aims to steer clear of exposure to blue chips. But that still leaves the question as to why the former two are so close in performance.

The S&P Indexes

The S&P Indexes have numerous offshoots that are utilized by the ETF world, but their all-inclusive benchmark is the S&P Composite 1500. This index tracks the 1500 largest companies in the U.S. and is divided (rather arbitrarily) into the S&P 500, the S&P MidCap 400, and the S&P SmallCap 600, none of which share any overlap. The problem with these tranches of the S&P 1500 is that the majority of the stocks in the S&P 500 actually fall closer to the mid-cap side of things, but because their market caps are dwarfed by the likes of Apple (AAPL) and ExxonMobil (XOM), they have little say in how a fund like OEF or SPY behave.

The largest market-cap style in which RSP invests is mid-cap; these stocks account for approximately 45% of the fund’s portfolio. This is the reason why RSP falls so closely in line with its mid-cap competitors, despite the fact that it still makes (small) allocations to blue chips.

The Bottom Line: RSP and Mid-Cap Funds

Yes, RSP behaves much like a mid-cap fund, but it would be a mistake to assume it is the same as a number of the mid-cap ETFs on the market. As mentioned above, RSP has little to no holdings in common with the mid-cap focused products on the market. RSP also has a bit of a buoy in that it still makes decent allocations to larger, more stable companies. This is evidenced by the fact that RSP tends to have a lower beta and volatility than other mid-cap ETFs.

Make sure that when you are looking at this popular fund you understand what sets RSP apart from its peers and understand that it is a fund all its own.

Follow me on Twitter @JaredCummans.

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Disclosure: No positions at time of writing.