When investors talk about the S&P 500, they often imagine a broad reflection of the U.S. economy, but in reality, the Index's behavior is increasingly dictated by a small cluster of mega-cap firms. Today, just seven companies, NVIDIA, Microsoft, Apple, Alphabet, Amazon, Meta and Tesla, account for nearly 40% of its total market capitalization. This level of concentration rivals or exceeds any prior period in modern market history, amplifying both returns and risk. In essence, the S&P 500 has become less a diversified portfolio and more a proxy for the world's most dominant technology platforms.

Figure 1: Viewing the Concentration of Exposure in the Magnificent 7

Many investors that we speak to are thinking about ways to de-emphasize this concentration. A simple approach is to look at the S&P 500 Equal Weight Index. The weights in the Magnificent 7 here were:¹

• NVIDIA: 0.23%
• Tesla: 0.25%
• Apple: 0.24%
• Amazon.com: 0.19%
• Alphabet, across two share classes: 0.23%
• Microsoft: 0.21%
• Meta Platforms: 0.18%

These weights make sense in that weighting 500 stocks equally would anchor at 0.20% per stock on the date of rebalancing. However, treating 500 companies exactly the same by way of weighting may be too strong a reaction to concentration risk. People may not want the weight in seven stocks to approach 40%, but they may also recognize that some companies are stronger than others.

Performance, Where the Rubber Meets the Road

Under its current methodology,² the WisdomTree U.S. Value Fund (WTV) has consistently outperformed the Invesco S&P 500 EqualWeight ETF (RSP)³ across multiple time horizons. WTV's fundamental weighting, focusing on companies reducing share counts and providing strong total shareholder yield, has proven more effective. By uniting diversification, valuation discipline and quality, WTV has turned its design into sustained outperformance.

Bottom Line: Both WTV and RSP sidestep the current concentration in very large companies that many see when they look at the S&P 500 Index. RSP is tracking a strategy that simply applies diversification by equalweighting;WTV, on the other hand, is focusing on a measure of investment fundamentals.

Figure 2a: How WTV Has Delivered beyond Equal Weight

Figure 2b: Standardized Performance

Step One: From Market Weight to Equal Weight

It is natural to want to remove concentration in a small subset of stocks. That's the premise of the S&P 500 Equal Weight Index, where each company holds roughly the same 0.2% weight. The result is a more balanced and democratic version of the S&P 500, but with trade-offs.

In figure 3, we see that quality, measured by return on equity (ROE), declines sharply. The share of firms earning more than 30% ROE falls from 43.6% to 22.4%, while exposure to sub-10% or negative ROE companies doubles. Equal weighting removes concentration but also dilutes quality, spreading exposure across strong and weak businesses alike.

Figure 4 shows the valuation shift: the Index becomes cheaper, with exposure to high P/E names (30x–35x) dropping from 30% to about 8% and weight in single-digit P/E stocks tripling. Yet that value improvement comes at the cost of the efficiency that made large firms dominant in the first place.

In short, the equal-weight approach broadens diversification, but at the expense of quality. The question remains: can we reduce concentration without abandoning excellence?

Step Two: From Equal Weight to WTV

WTV seeks to answer that question. Instead of equal weighting every company or following market cap, WTV weights primarily based on a fundamental concept: a company's ability to return cash to shareholders—in other words, the concept of total shareholder yield.

Buybacks, when done sustainably, are one of the clearest signals of capital discipline. They reflect management teams confident in their balance sheets and long-term prospects. By prioritizing firms that are consistently shrinking their share bases, WTV builds a portfolio that is both quality-conscious and valuation-aware.

Figure 3: The Hidden Quality Trade-off in Equal-Weight Indexing

Conclusion: Valuation Discipline Without Sacrificing Fundamentals

Turning to valuation, WTV pushes the improvement further than the Equal Weight Index, adding valuation discipline while preserving the quality profile seen earlier. As shown in figure 4, more than 50% of WTV's weight is in stocks trading below 15x earnings, compared to just 3% in the S&P 500. High-multiple exposure (above 30x) is nearly eliminated.

The result is valuation compression without quality loss: WTV owns companies that are cheap for good reasons, those using their earnings power to repurchase shares and reinvest productively, not firms that are merely inexpensive because they're weak.

Figure 4: How WTV Anchors Exposure in Fundamentally Priced Stocks

Figure 5: Additional Information

¹ Sources: FactSet, S&P, with data as of 10/30/25.

² WTV's current methodology has been in place since 12/18/17, and references the direct focus on total shareholder yield. Prior to that date, WTV was tracking a different investment strategy that was defined by the WisdomTree U.S. LargeCap Value Index.

³ RSP is designed to track the total return performance, before fees and expenses, of the S&P 500 Equal Weight Index.