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:
Diversification Benefits: 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.
Performance of Smaller Constituents: 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.
Sector Rotation: 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.
DeepSeek Selloff: 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. 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.
