The S&P 500 is dominated by the "magnificent seven" which creates significant concentration risk. The S&P 500 equal weight index offers a possible alternative.
Some would disagree that SPY vs RSP comes down to active vs. passive. SPY is active they say (and I agree).
If we expand our thinking, the choice array is much broader than cap wt companies vs. equal wt. companies. Chris Schindler points out in a recent Resolve Riffs podcast that even though equal wt offers some advantages relative to cap wt, it also has disadvantages (https://investresolve.com/single/resolve-riffs/ beginning about 10 min. mark).
Perhaps the biggest challenge is choosing the units to equal weight Companies are problematic, e.g. consider whether Alphabet is one or many companies (what if govt forces a breakup-what was weighted as 1 company is now multiple). Perhaps better approach is using other units, e.g. fundamental metrics/units as pioneered by Research Affiliates RAFI. Weighting based on a dollar of earnings is simple and efficient, avoids some of the definitional problems of "unit." And, has the benefit of outperforming. (See RA website for definition on various fundamental units, implementation and performance research.)
Some would disagree that SPY vs RSP comes down to active vs. passive. SPY is active they say (and I agree).
If we expand our thinking, the choice array is much broader than cap wt companies vs. equal wt. companies. Chris Schindler points out in a recent Resolve Riffs podcast that even though equal wt offers some advantages relative to cap wt, it also has disadvantages (https://investresolve.com/single/resolve-riffs/ beginning about 10 min. mark).
Perhaps the biggest challenge is choosing the units to equal weight Companies are problematic, e.g. consider whether Alphabet is one or many companies (what if govt forces a breakup-what was weighted as 1 company is now multiple). Perhaps better approach is using other units, e.g. fundamental metrics/units as pioneered by Research Affiliates RAFI. Weighting based on a dollar of earnings is simple and efficient, avoids some of the definitional problems of "unit." And, has the benefit of outperforming. (See RA website for definition on various fundamental units, implementation and performance research.)