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Equal weight S&P 500 for US exposure (self.personalfinancecanada)

submitted 2 years ago by BuoyantCitrus to c/personalfinancecanada

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cross-posted from: https://lemmy.ca/post/653849

I'm trying to follow conventional wisdom and have more and more of our portfolio as straight up VGRO but want some more US exposure (though I am aware there are arguments in favour of a home-country bias). I was also interested in picking a USD fund as not only do they tend to have a lower MER but also get an extra boost from witholding tax exemption if I hold them in an RRSP.

An S&P 500 fund seems the way to go, but it seems awfully slanted towards giant tech megacaps. Apple alone is over 7% of VOO. With a P/E over 31 it's hard for me to feel like there's not extra risk with the concentration here--is it really such a safe bet to think the largest company in the world has that much more growth ahead of it? And VGRO already has a solid chunk of cap-weighted exposure.

And so, after my inexpert research failed to dissuade me, I'm probably going to use an equal-weight ETF like RSP or EUSA for this portion---there are no penny stocks on the S&P 500 and it doesn't seem to perform much worse (and indeed better depending how far back you test). At this point I'm more comfortable with either of those than VOO and will probably do this just for the irrational psychology, but I do wish there was something that combines an equal weighting with a screen for quality (something like SPHQ) as a big drawback seems like for as much concentration risk as it avoids it also keeps rebalancing more and more into failing companies as they crash and burn.

Anyone else subscribe to a similar reasoning and incorporate an equal weight fund into the passive portion of your portfolio? Which one did you go with?

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[–] Stochastic 2 points 2 years ago (1 children)

I'm not sure I agre that

An S&P 500 fund seems like the way to go.

Why not a small-cap ETF to help counteract the already over-exposure to large-caps that naturally come with VGRO portfolio? S&P 500 is by its nature a large-cap lean.

[–] BuoyantCitrus 2 points 2 years ago (1 children)

Basically it seems riskier--my understanding was that small caps have a higher volatility which fits my intuition that on top of the additional risk for smaller businesses, a cap-weighted small-cap index like VB is going to get caught up in random faddish shenanigans like GME. I did consider "factor" funds that try to compensate for that like AVSC but wasn't confident it'd be worth the higher MER.

Whereas an equal-weight S&P 500 looks like a bit of a mid-cap tilt and a bit of a value tilt but generally more conservative than funds weighted that way in earnest.

[–] Stochastic 2 points 2 years ago

I mean yeah, small caps are riskier and as such you'll expect a greater return.

The fad stuff is unlikely to affect broad market ETFs significantly.

[–] TemporaryBoyfriend 1 points 2 years ago (2 children)

You can have imperfect simplicity, or something overly complex that meets your requirements.

You can buy a pre-existing ETF (imperfect but simple), or you can buy all of the equities individually to manage the equal-weight balance (overly complex). You'll likely spend more in fees doing the latter, even if you do spend the time and effort to manage 500 equities all by yourself -- and it's not really clear that you'll come out ahead in terms of stability or gains.

[–] BuoyantCitrus 1 points 2 years ago (1 children)

Heh, I think that's a bit of a false dichotomy. What about the option I refer to above eg. two ETFs: VGRO and RSP ie. at no point did I ever contemplate balancing 500 equities:

I’m probably going to use an equal-weight ETF like RSP or EUSA for this portion

[–] TemporaryBoyfriend 1 points 2 years ago

It's everything after the part you just quoted that made me suggest managing all the stocks individually. :)

[–] Stochastic 1 points 2 years ago

Why would you buy individual equities when there's multiple cheap equal-weight S&P 500 ETFs on the market?