How to Beat the S&P 500

The first full week of July saw stocks advance and bonds pull back. More of the same! Last week, I discussed the risks of inflation and how to protect your portfolio.

A Look at the Market

The S&P 500 has returned 11.3% with dividends included, and the price is up 10.7% for SPDR S&P 500 ETF (SPY) in 2026 so far. This leaves the market on track to post a return for the full year in excess of 20%. At the same time, iShares Core US Aggregate Bond ETF (AGG) has declined in price in 2026. With dividends included, the return has been 0.2%, which is well below cash.

For those trying to beat the S&P 500, there are lots of ways to attempt the effort. One can go outside of the S&P 500 into mid-caps and/or small-caps. One can also stay in large-caps but shift towards or away from certain sectors.

At the beginning of the year, I had large exposure to a small-cap ETF that has done very well. There have been massive shifts this year in terms of market cap performance, as large-caps have enjoyed a very strong relative return for several years, as demonstrated with this look at the action since the end of 2022:

There is some catch-up going on this year! Small-caps are winning big, with a return of almost 2X the S&P 500. While perhaps a better environment for M&A supports this, it seems at odds with how the overall economy is performing.

One of the big stories this year has been the weakness in the very largest stocks. The S&P 500 is market-cap weighted, and the top 10 names currently account for about 37.3% of the index. One of those ten is up a lot in 2026, but it is the smallest currently. The other 9 tickers include two that are down and two that are up but less than the S&P 500. I have been using and equal-weighted ETF to fight against the largest stocks underperforming, though I currently have no exposure to that ETF.

Another way to try to beat the market is to focus on certain sectors and avoid other sectors. I have purposefully been avoiding large-cap Technology, though it has been the the strongest of the 11 sectors. I am also concerned with the Financials sector currently. I have favored in the model portfolio Utilities at times. Here is how the 11 sectors have performed this year so far:

Technology and Energy are both up by more than 10% ahead of the S&P 500, and Communications Services and Consumer Discretionary are down and are trailing the S&P 500 by more than 10%.

I am underweight Equities currently, with most of my exposure in a mid-cap focused ETF. NOBL, though, is focused on large-caps. With the underperformance of the S&P 500 and the fact that I am measured against the S&P 500 in the model portfolio, I am comfortable with the large-cap exposure. I last wrote about NOBL at Seeking Alpha in May, upgrading it to Buy. It has increased in price substantially since then and has outpaced the S&P 500. Year-to-date, it is lagging just slightly.

There is a lot I like about how this index works, and ProShares does rebalance it to equal-weighted several times a year. With that said, it does have some very large sector exposures, with two above 20%:

The two smallest sectors are the two that are doing the best in 2026, though NOBL is pretty much keeping up with the S&P 500. If these top sectors so far pull back, NOBL should benefit due to its low exposure. With that said, Consumer Staples and Industrials present an exposure to monitor. The good news is that this is not large exposure to any company in particular.

I am not super-bullish on NOBL, but I do believe it will hold up better if the market pulls back than the S&P 500. I expect to care more about sectors (or certain sub-sectors) if the market pulls back. I am not a fan of large-caps, but NOBL is set up a lot better in my view than the S&P 500.

ETF Model Portfolio Update

This ETF model portfolio, which is measured against 60% SPY and 40% AGG, is up relative to its benchmark. This week, I did several trades, which were published on here instead of on my Seeking Alpha blog. For those who would like real-time alerts (free of charge for now), just subscribe to the blog.

I posted one article this week at Seeking Alpha about ETFs:

SMDV: Why I Am Downgrading This Great ETF

Going into the week, my model portfolio equity exposure totaled 28.2%, spread out across two ETFs. Here is what I did this week:

• Monday: I reduced iShares Bitcoin Trust ETF (IBIT).

• Tuesday: I increased PIMCO 15+ Year US TIPS Index ETF (LTPZ).

• Thursday: I reduced IBIT again, and I boosted ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL).

• Friday: After another trim of IBIT, I later boosted iShares TIPS Bond ETF (TIP).

Here is the current model portfolio, which now has 30.8% equity exposure in two ETFs and fixed income exposure in four ETFs that totals 64.1%:

I have been wrong this year, at least so far, as stocks keep rallying. The rally has been until Friday five weeks ago, when they had their worst day of the year. Since then, the S&P 500 has not made a new high, though it sure has tried. Small-caps did again make a new high in early July. Despite being underweight stocks all year, my return relative to the 60/40 index is higher by about 4.3% in just over six months. In fact, while the S&P 500 rose again this week, and the Aggregate Bond Index fell slightly, this model portfolio advanced during the week.

The year-to-date strong relative performance is not due to superior returns on my current equity ETFs. My TIPS ETFs have done okay relative to AGG, but they aren't exactly boosting the return. VGSH isn't helping too much either. So, what has it been? I have had positive returns from three ETFs, two of which I no longer hold and one of which is down a lot year-to-date that I just repurchased recently, and there has been some good trading.

How Can I Help You?

I enjoy analyzing ETFs and stocks, and I like sharing my thinking in writing. I am considering starting a subscription service or joining one that is already being published. What things would you as an investor like to see offered?

If you are an investment professional, I would like to work with you as well. I can help educate financial consultants about the ETFs, and I can work with management at investment firms to help create model portfolios or potential ETF investments. Please let me know if your firm would be interested in this.

My ETF articles at Seeking Alpha, written under the alias The Intelligent ETF Investor, share a lot of my ideas.