SPY vs RSP: Why Market Cap Is Winning the ETF Battle

The age-old debate between market-cap weighted (SPY) and equal-weighted (RSP) S&P 500 strategies is seeing a shift. While RSP historically offered better exposure to mid-cap strength and sector diversification, recent data tells a compelling story about changing market dynamics. Here's what our systematic analysis reveals.

‍

📊 Current Model Allocation:

• SPY: 100%
• RSP: 0%
• T-Bills: 0%

‍

💰 Cost Consideration:

• SPY: 0.095% expense ratio
• RSP: 0.200% expense ratio

‍

📈 Why SPY Is Currently Favored:

Trend & Momentum Analysis:

• Both ETFs above 10-month MA, but RSP/SPY ratio below its MA
• Current Momentum favors SPY
• SPY's volatility-adjusted returns more than double RSP's

‍

Risk & Market Capture Evolution:

• RSP's beta increasing: 1.12 (long-term) → 1.13 (1-year)
• Historical up-market advantage disappeared: 1.07 → 0.96 (1-year)
• Shift in down-market protection: RSP now falls 75% (1-year) more than SPY in drawdowns (1.75 vs 1.12 historical down capture)

‍

Rolling Performance Comparison:

1-Year Metrics:

• Returns: SPY & Quantlake 16.8% vs RSP 7.9%
• Sharpe Ratio: SPY & Quantlake 1.71 vs RSP 0.55
• Sortino Ratio: SPY & Quantlake 3.20 vs RSP 0.80

‍

3-Year Metrics:

• Returns: Quantlake 45.3% | RSP 20.1% | SPY 39.6%
• Sharpe: Quantlake 0.94 | RSP 0.27 | SPY 0.63
• Sortino: Quantlake 1.64 | RSP 0.40 | SPY 0.92

‍

📝 Long-Term Perspective (Since April 2003):

• CAGR: All three at ~11.0%
• Max Drawdown: Quantlake -19.9% | RSP -55.6% | SPY -50.8%
• Sharpe Ratio: Quantlake 0.82 | RSP 0.56 | SPY 0.65
• Sortino Ratio: Quantlake 1.26 | RSP 0.80 | SPY 0.93

🎯 The Quantlake Approach:

Our systematic models have maintained this SPY preference since March 2023. While RSP's sector diversification traditionally provided advantages in broad market rallies, current data shows a shift in this relationship. We continuously monitor these dynamics, ready to arbitrate allocations between SPY, RSP, and T-Bills as market conditions evolve.

‍

⚠️ Disclaimer: Past performance doesn't guarantee future results. This analysis reflects historical data and current market conditions. Investment decisions should align with your personal goals, risk tolerance, and overall financial strategy. Our model's allocations may change as market conditions evolve.