To many investors, the S&P 500 is cited as a single, definitive benchmark for U.S. stocks. At ETF Action, however, our analysis shows that it’s a collection of 500 distinct stories, and the narrative changes entirely based on how those stories are told. By examining three distinct ETFs that track U.S. large-cap stocks but weight them differently, we can see three unique investment narratives unfold.
This report compares the classic market-cap-weighted SPDR S&P 500 ETF Trust (SPY), the revenue-weighted Invesco S&P 500 Revenue ETF (RWL), and the earnings-weighted WisdomTree U.S. LargeCap Fund (EPS). While SPY and RWL draw their holdings directly from the S&P 500, EPS selects the top 500 companies from a broader U.S. index and weights them by core earnings. Our analysis of their sector exposures, fundamentals, and top holdings reveals how a simple change in methodology can paint a dramatically different picture of the American economy.
Chapter 1: The Classic Market-Cap Methodology (SPY)
The most common narrative for the S&P 500 is dictated by market capitalization, where the largest companies by market value have the most influence. SPY is the quintessential representation of this approach.
Sector Exposure:
This portfolio is overwhelmingly dominated by the Information Technology sector, which constitutes over 30% of the fund. This heavy concentration means the performance of a handful of tech giants largely dictates the index’s direction. Financials and Health Care hold significant, but much smaller, roles.
Fundamentals:
SPY’s fundamentals reflect this growth-oriented, tech-heavy composition. It trades at a relatively high Price-to-Earnings (P/E) ratio of 27.58. Its high Return on Equity (ROE) of 22.49% speaks to the profitability of these market leaders. This is the profile of a portfolio that values future growth prospects, often driven by innovation and technology.
Top 10 Holdings:
The largest constituents are the titans of technology. NVIDIA (7.97%), Apple (6.30%), and Microsoft (6.87%) command the top weights due to their massive market valuations, reinforcing the sector’s dominance in this classic S&P 500 structure.
Chapter 2: A Focus on Revenue (RWL)
By shifting the weighting methodology to revenue, as RWL does, the narrative moves from market valuation to underlying business activity. Here, the focus is on the companies that sell the most goods and services.
Sector Exposure:
The tech-centricity of SPY recedes significantly, with Information Technology shrinking to just over 10% of the portfolio. Instead, sectors representing the tangible economy—such as Consumer Discretionary, Health Care, and Financials—receive more substantial and balanced allocations. This provides a clearer picture of broad consumer and business spending.
Fundamentals:
This focus on raw sales dramatically changes the financial profile. RWL’s P/E ratio is a much lower 20.23, and its Price-to-Sales ratio is a mere 0.88. This is a classic value profile, emphasizing the sheer size of a company’s sales operations over its market sentiment. The higher Long-Term Debt-to-Equity (98.38) also points toward the capital-intensive nature of the retail and industrial giants that rise to the top in a revenue-weighted scheme.
Top 10 Holdings:
The list of top holdings changes significantly. While a company like Amazon (3.72%) is present, it is Walmart (3.70%) that commands one of the top spots. Berkshire Hathaway (2.04%) and Exxon Mobil (1.89%) also feature more prominently. This portfolio highlights the massive, sprawling businesses that form the backbone of the U.S. economy.
Chapter 3: The Profitability Mandate (EPS)
Our final analysis looks through the lens of earnings per share via the EPS ETF. This narrative prioritizes the bottom line, focusing not on market hype or gross sales, but on which companies are the most profitable.
Sector Exposure:
The EPS story is a hybrid of the previous two. Information Technology remains the largest sector at roughly 25%, but its dominance is tempered. Financials and Health Care are given much larger roles than in SPY, each accounting for about 18% of the fund. This creates a blended portfolio, rewarding profitable tech innovators while also highlighting the cash-generating powerhouses in finance and medicine.
Fundamentals:
As expected, the fundamentals are strong. The P/E ratio of 23.53 sits between the growth-oriented SPY and the value-focused RWL. Most tellingly, EPS boasts the highest Return on Equity (22.80%) and a robust Net Margin (18.32%). This is a portfolio built on efficiency and profitability.
Top 10 Holdings:
The top holdings reflect this focus on the bottom line. While many of the same tech names appear, their weights are shuffled. Alphabet (GOOGL), a highly profitable company, is weighted more heavily in EPS (6.33%) than in SPY (2.23%). Similarly, the financial powerhouse JPMorgan Chase & Co. (2.76%) has a more significant presence, a direct reflection of its immense earnings.
ETF Action’s Analysis: Matching Strategy to Market Cycle
Each strategy’s unique construction leads to a distinct risk and return profile. At ETF Action, we utilize our proprietary, rules-based Derived Analytics system to move beyond labels and understand true exposures. By quantifying each fund’s characteristics, our system provides a data-driven framework for anticipating performance across different market cycles.
- SPY is classified by our system as a “Growth” fund. This assignment is supported by its “Below Average” Value Tilt of 1.86. Its current “Above Average” Momentum Tilt (3.09) is a direct reflection of the recent market cycle, which has strongly favored the mega-cap technology stocks that dominate its portfolio. This high momentum score is a feature of the current market, not the fund’s permanent strategy. SPY’s core growth identity is what makes it likely to outperform during strong, sustained bull markets, but could also make it more vulnerable during corrections.
- RWL earns a clear “Value” Style Assignment in our system. This is driven by an “Above Average” Value Tilt with a high rating of 3.37. Its current “Average” momentum score simply reflects that value-oriented stocks have not been leading the market recently; this score would inherently rise if market leadership rotated. Our analytics also reveal a key strategic benefit: “Below Average” ratings for both Stock Concentration (1.55) and Sector Concentration (1.64). This profile suggests RWL is built to perform well during early-stage economic recoveries and may offer a defensive cushion during downturns.
- EPS, confirming its hybrid nature, is assigned a “Core” style by our analytics. Its factor tilts are balanced, with “Average” ratings for Value (2.15) and Growth (2.28). Like SPY, it currently shows an “Above Average” Momentum Tilt (3.06) because its profitable holdings have been in favor with the market. This unique blend of quality and momentum is designed for resilience, allowing it to participate in upswings while its focus on profitability can become attractive when markets are turbulent.
Conclusion: Three Lenses, One Market
This comparative analysis demonstrates that an index’s weighting methodology is a critical determinant of its investment profile.
- SPY offers a narrative of growth and market sentiment, dominated by technology.
- RWL provides a value-driven story of the industrial and consumer giants that generate immense sales.
- EPS weaves a balanced narrative of profitability, rewarding the most efficient companies.
How an investor sees the market depends entirely on the lens they choose. At ETF Action, our tools are designed to dissect these nuances, providing the clarity needed for informed decision-making.
Disclosures
This material is for informational purposes only and should not be considered investment advice. All investments, including ETFs, involve risk, including the possible loss of principal. Investors should consider their investment objectives, risks, charges, and expenses carefully before investing.
This analysis was developed by the team at ETF Action. We leverage advanced AI tools to assist in the drafting and refinement of our content, based on our expert prompts, direction, and final review.
