New BlackRock ETF Takes Bite Out of S&P 500 Weightings

Mega-cap stocks are getting bigger than a shark in a Jason Statham movie — and that trend is chomping away at diversification within S&P 500 ETFs. That may not be a problem for many investors, but the likes of Apple, Microsoft, Nvidia, Amazon, Meta, and other big names account for an increasingly disproportionate share of assets within index-tracking funds. That of course means the performance of an index fund is affected more by larger names than smaller ones.

BlackRock has a sort of answer to that. The firm last week launched the iShares S&P 500 3% Capped ETF (TOPC), which as the name implies limits the exposure to any individual stock at 3%. The index is packed to the gills with stocks, and the new strategy gives the biggest fish smaller bites. “The timing of Blackrock’s launch of TOPC could be good, since investors who have been concerned about the top-heavy nature of the S&P 500 can use it to tilt away from mega caps, while retaining US equity exposure,” said Aniket Ullal, head of ETF research and analytics at CFRA Research.

Not the Only Fish in the Sea

BlackRock is floating the ETF as the first of its kind, at least as far as using a 3% cap on individual stocks. But there are others that adjust market-cap weightings. The biggest potential competitor for the new iShares ETF, for example, is Invesco’s S&P 500 Equal Weight ETF (RSP), Ullal said. “In practice, TOPC is effectively an equal weight S&P 500 ETF and will compete directly with RSP,” he said. “RSP is a very established ETF with $68 billion in assets, so Blackrock will need to market its lower expense ratio (0.09% vs RSP’s 0.2%) and also rely on its strong brand and distribution capabilities to compete.”

Here’s how a few S&P 500 ETFs compare:

• The biggest S&P 500 ETF, Vanguard’s $590 billion VOO, has about 7% of its assets in Apple, 6% in Microsoft, 6% in Nvidia, and 4% in Amazon. 
• The new iShares ETF has about 3% in each of those stocks.
• Invesco’s RSP has just 0.2% or less in those — and the single biggest holding, Northrup Grumman, accounts for just 0.24% of its portfolio.

Against the Current: There’s yet another new take on S&P 500 investing. Last week, Global X debuted two new products: The S&P 500 US Revenue Leaders ETF (EGLE), and the Global X S&P 500 US Market Leaders Top 50 ETF (FLAG). Both funds seek out US companies that have 50% or more of their revenue coming from within the country. “These strategies take a more targeted approach to focus on those US companies strategically positioned for an environment that includes onshoring, rising tariffs, and shifting economic dynamics,” said Scott Helfstein, the firm’s head of investment strategy. Fin.