It is common for the SPY ETF to be used as a benchmark to compare portfolio results to. But it is a big mistake to use it.  Using the SPY is like comparing apples to oranges in nearly every scenario.

The SPY is a cap weighted ETF of the 500 stocks in the S&P 500 index. Because it is cap weighted, it gives oversized weight to the top 10 stocks in it.  The top 10 stocks account for 30% of the value of the ETF. Very few portfolios that investors have are investing in these same 10 mega cap stocks in oversized amounts.  It makes no sense to compare your portfolio to the SPY as a benchmark.

I am going to be comparing six ETF index funds:

• SPY – Cap weighted version of the SP500 Index
• RSP – Equal weighted version of the SP500 Index
• EQAL – Equal weighted version of the Russell 1000 Index. The 1000 largest companies.
• MDY – Cap weighted version of the SP400 Index
• IJR – Cap weighted version of the SP600 Index
• BSMAX –  Cap weighted version of the Russell 2500 Index. Contains Mid and Small cap stocks.

The breakdown by types of stocks in each ETF:

• SPY – 48% Giant, 35% Large, 17% Mid
• RSP – 6% Giant, 31% Large, 59% Mid, 3% Small
• EQAL – 3% Giant, 18% Large, 50% Mid, 27% Small
• MDY – 38% Mid, 61% Small
• IJR – 1% Mid, 58% Small, 41% Micro
• BSMAX – 33% Mid, 48% Small, 16% Micro

The breakdown by percent of assets in top 10 holding:

• SPY – 30%
• RSP – 2%
• EQAL – 5%
• MDY – 6%
• IJR –   6%
• BSMAX – 4%

To avoid unwarranted euphoria (the SPY has a bad year and you crushed it but your investments are not oversized mega caps) or depression (you thought you were doing pretty good but the SPY had a great year and the mega caps crushed you but again you do not have oversized mega caps), do not use the SPY as a benchmark. Instead choose an Index that more closely matches the assets you are actually holding. It will be useful to do an apples to apples comparison to see how you are really doing against a sensible index. If the sensible index is still kicking your butt, perhaps you need to make a change in your investment approach!

Different Portfolio compositions require a different Index benchmark.

• If you largely have stocks in the SP500 index, the best ETF to compare yourself against is RSP.  In my Large Cap Stalwarts Portfolio I have chosen this benchmark.
• If you have a mixture of large, mid and small cap stocks, the best ETF to compare yourself against is EQAL. In my Quant Alpha’s Portfolio, I have chosen this benchmark.
• If you are concentrated in mid cap stocks in your portfolio, the best ETF to compare yourself against is MDY. In my Mid Cap Flyers Portfolio, I have chosen this benchmark.
• If are concentrated in small cap stocks in your portfolio, the best ETF to compare yourself to is IJR. In my Small Cap Discoveries Portfolio, I have chosen this benchmark.
• If you have a portfolio that does not really fit into the groups above, you will probably be able to find an Index that is a hybrid of the various weightings.  For example, for my BI-Weekly Swings Portfolio, I use BSMAX which is about 1/3 Mid cap and 2/3 Small cap.  This matches the distribution of stocks in the Portfolio closely.

Morningstar.com is the source for most of the data above.

In the four Model Portfolios, Mid Cap Flyers, Small Cap Discoveries, CANSLIM Growth and Large Cap Stalwarts, the year-to-date stats are below.

Performance 2023 to date – 8/8/23

Small Cap Discoveries	+20.0%
IJR – Small Cap ETF Benchmark	+9.1%

CANSLIM Growth	+25.1%
IJR – Small Cap ETF Benchmark	+9.1%

Mid Cap Flyers	+11.8%
MDY – Mid Cap ETF Benchmark	+10.5%

Large Cap Stalwarts	+0.5%
RSP – Large Cap ETF Benchmark	+7.5%

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