Market weight vs. Equal weight S&P 500 ETFs
z1b/iStock via Getty Images


As 2022 kicks off, market participants evaluate their outlook on the S&P 500 and where it will end for the year. Moreover, are they are better off allocating capital to a market weight ETF such as SPDR S&P 500 Trust ETF (NYSEARCA:SPY) or an equal weight fund like the Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP).


CNBC conducted a 2022 market outlook report with 13 institutions and gathered their S&P 500 targets. The information shows that the average projection is 4,985 and the highest level went to Oppenheimer at 5,330, and on the flip side, Morgan Stanley forecasts the lowest levels of 4,400.
The U.S. 10-Year yield has jumped to start 2022, up 16 basis points from the from Dec. 31 close. Traditionally, as yields rise, it places added pressure on the technology sector, which makes up 26.9% of SPY. Moreover, just three companies, Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and NVIDIA (NASDAQ:NVDA), weighted at 6.7%, 6.4%, and 2.1%, respectively, equal 15.2% of the fund.
Additionally, SPY's top 10 holdings represent nearly a third of the ETF's returns even though the fund has 508 holdings.
If yields rise, which is a growing possibility with the Fed expected to raise rates this year, it can add pressure to the tech-heavy index fund.
RSP, the equal-weight S&P 500 ETF on the other hand, can provide a bit of a haven as the fund provides investors with a broader market exposure that offers greater relevance towards financials and energy, which have had an excellent 2021.
While RSP might appear to offer the more balanced blend, if big tech FAANG names continue to sport significant returns, SPY can remain on top.
The new year brings new predictions, and Blackstone's Byron Wien and Joe Zidle publicized their top ten surprises for 2022.