The Mag-7 look more like the “Lag 7” in 2025, as the Invesco S&P 500 Equal Weight ETF (RSP) has outperformed the traditional market-capitalization-weighted S&P 500 index, as mega-cap tech stocks have been a performance drag.
The Magnificent Seven stocks—Apple Inc. (AAPL), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN), Alphabet Inc. (GOOG, GOOGL), Meta Platforms Inc. (META), Nvidia Corp. (NVDA), and Tesla Inc. (TSLA)—led the S&P 500 to two consecutive years of 20%+ returns but have mostly underperformed smallcap and midcap stocks this year.
Through Feb. 4, RSP was up 3% while the SPDR S&P 500 ETF Trust (SPY) rose 2.7%, and the Roundhill Magnificent Seven ETF (MAGS) lagged both with a 2.3% gain.
The performance story was quite different in 2024, as MAGS rocketed 64%, SPY jumped 25%, and RSP gained less than 13%.
Collectively, the Mag 7 stocks make up 33% of the S&P 500’s market capitalization and contributed over 50% of the S&P 500's gains last year, with an average increase of 63% among them.
Combining for such outsized influence, it’s no surprise that the market-cap-weighted S&P 500 would lag an equal-weight ETF like RSP, as four of the Mag 7 stocks have negative returns thus far in 2025.
RSP’s 2025 outperformance can be attributed to several key factors:
RSP assigns equal weight to each of the 500 companies in the S&P 500, reducing the concentration risk associated with larger companies. In contrast, the traditional S&P 500 is heavily influenced by a few mega-cap stocks, particularly in the technology sector. When these dominant companies underperform, the equal-weighted approach of RSP can lead to better returns.
In 2025, the smaller, mid-sized companies within the S&P 500 have demonstrated strong performance, contributing positively to RSP's returns. The equal-weighted structure allows these companies to have a more significant impact on the ETF's overall performance compared to their influence on the market-cap-weighted index.
Market dynamics in 2025 have favored sectors, such as healthcare, utilities, and consumer staples, that are underrepresented in the market-cap-weighted S&P 500. RSP's equal weighting provides broader exposure across all sectors, allowing investors to benefit from gains in sectors that may have less representation in the traditional index.
The introduction of DeepSeek, a Chinese AI company, significantly impacted the performance of several mega-cap technology companies. DeepSeek's AI Assistant, utilizing its V3 model, has demonstrated capabilities comparable to leading AI models but at a fraction of the development cost.
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On January 27, 2025, following DeepSeek's announcement, major technology stocks experienced declines, most notably the Mag 7 constituent, Nvidia, which fell 17% that day. Other Mag 7 stocks in the red for 2025 include Microsoft, Apple, Tesla, and Amazon.
RSP's equal-weighted strategy offers a more balanced exposure across all S&P 500 constituents, enabling it to capitalize on the strong performance of smaller companies and diverse sectors, leading to its outperformance relative to the traditional S&P 500 index in 2025.
As always, past performance is no guarantee of future results and investors should consider multiple factors, including their financial goals and risk tolerance, before buying shares of any ETF.
