RSP leads SPY by 2 points as yield curve steepening aids equal weight

RSP climbed 12% year to date to roughly $213, outpacing the SPDR S&P 500 ETF's 10% gain, as a steepening yield curve rotated leadership away from mega-cap growth. The fund has added roughly $9 billion in net assets this year, crossing $88 billion across 508 positions.

The 10-year minus 2-year Treasury spread sits at 0.40%, in only the 8th percentile of its 12-month range and well below the 0.54% average, according to Federal Reserve data. A move through 0.60% would signal the market is pricing in two or more rate cuts, the CME FedWatch Tool shows. A steepening curve historically favors smaller-cap, cyclically sensitive and financially levered names — exactly the constituents RSP overweights relative to SPY.

RSP targets a 0.2% weight in every S&P 500 constituent and rebalances quarterly. Between resets, winners drift: Intel reached 0.38% of net assets while Tractor Supply fell to 0.14%, creating a 2.8x spread inside a fund built to avoid concentration. The top 20 positions read like a semiconductor conference roster — Intel, Seagate, SanDisk, NXP, Microchip, Texas Instruments, Qualcomm, Analog Devices, Dell, Lumentum and HPE — while Apple, Microsoft, Alphabet and Meta each sit at 0.20% or less, giving the fund almost no Magnificent Seven torque.

The transmission from rates to stock selection is visible in individual holdings. J.B. Hunt Transport Services, a classic rate-sensitive cyclical, has surged 45% year to date even as its trailing P/E sits at 43. Elevance Health added roughly 23%. Conagra Brands, a consumer staples name that typically lags when investors favor growth, has fallen 15%. BlackRock is down 3%. These divergences reflect the rotation underway beneath the headline index.

Two signals determine whether RSP's advantage widens or reverses. If the 10Y-2Y spread pushes above 0.60% with two Fed cuts priced in, equal-weight strategies historically open distance on cap-weighted peers. The September quarterly rebalance — the third Friday of the month — will then trim the semiconductor overweight back toward 0.20% and mechanically buy laggards. Conagra Brands and BlackRock will see forced inflows as the index resets.

The fund has effectively been a semiconductor-tilted vehicle for the past few months, riding an AI capex wave that pushed ASML up 67% and lifted the semi cluster inside RSP. After the September rebalance, that tilt resets. Investors who bought RSP for pure diversification get it back; those who bought it for the semi tailwind lose it.

The DXY has softened as rate-cut expectations build, providing additional tailwinds for cyclical and value-oriented names. The U.S. 10-year yield has held near 4.2%, and gold has traded near $2,400, reflecting the macro uncertainty that typically favors equal-weight exposure over concentrated mega-cap bets. For portfolio managers, the question is whether the rotation has legs: the next CPI release and the September Fed meeting will provide the answer.

This article is for informational purposes only and does not constitute investment advice.