Michael Green has a recent article entitled “There is no joy in Mudsville” which is a must read. I’ve seen numerous CNBC personalities, YouTubers and others talk about the recent decision to allow non-profitable companies into the S&P 500. There are other rule changes that add concern as well.
Personally, I’ve been investing in RSP over SPY for some time now but I wanted to get other options so I decided to ask AI about it.
AI On S&P 500 “Enshitification”
The concern is less “the S&P 500 is broken” and more that it’s becoming increasingly dominated by a handful of giant growth companies and may soon loosen admission standards for mega-cap IPOs that aren’t yet profitable. S&P Dow Jones is reportedly considering waiving profitability requirements for very large firms and shortening seasoning periods after IPOs. (Bloomberg)
That’s making a lot of investors revisit what they actually want from an index:
- broad capitalism exposure?
- profitable businesses?
- valuation discipline?
- equal weighting?
- international diversification?
- less AI concentration?
Here are the strongest alternatives, depending on what problem you’re trying to solve.
If your problem is “too much mega-cap concentration”
Equal-weight S&P 500
The classic answer is the equal-weight version of the S&P 500.
Instead of Apple/Microsoft/Nvidia dominating the index, every company gets roughly the same weight.
Examples:
Why people like it:
- less “Mag 7” dependence
- stronger exposure to industrials, financials, mid-size firms
- historically benefits when market leadership broadens
This has already outperformed the cap-weighted S&P 500 during some 2026 periods as breadth improved.
Tradeoff:
- higher turnover and taxes
- slightly higher fees
- underperforms during mega-cap tech melt-ups
If your problem is “I want profitable companies only”
S&P 600 Small Cap
Ironically, the small-cap S&P 600 has stricter profitability standards than the Russell 2000.
That’s a huge deal.
Schwab notes that roughly 44% of Russell 2000 firms were unprofitable versus about 20% in the S&P 600 because the S&P 600 requires earnings. (Schwab Brokerage)
Examples:
This is one of the cleanest “anti-enshitification” indexes because it explicitly filters for viable businesses.
If your problem is “valuation insanity”
Fundamental indexing
These weight companies by sales, cash flow, dividends, or book value instead of market cap.
That means:
- expensive stocks don’t automatically become bigger weights
- bubbles self-limit
- value discipline is built in
Examples:
This approach was basically invented as a critique of cap-weighted indexes.
If your problem is “I want quality businesses”
Quality factor indexes
These explicitly screen for:
- profitability
- ROE
- balance-sheet quality
- earnings stability
Examples:
This is probably the closest “I want the S&P 500 before the vibes era” solution.
Quality strategies have also recently outperformed broader indexes amid concerns over concentration and speculative growth exposure. (MarketWatch)
If your problem is “the U.S. market is too distorted”
Total international developed markets
A lot of investors are rediscovering that the U.S. isn’t the entire world.
Examples:
Why this matters:
- lower valuations
- less AI concentration
- more industrials, banks, exporters
- weaker “story stock” culture
You give up some historical growth, but you diversify away from U.S. tech dominance.
If your problem is “I don’t trust passive indexing anymore”
Berkshire Hathaway as a quasi-index
Some investors now treat Berkshire Hathaway as a curated alternative to the S&P 500:
- profitable businesses
- insurance float
- less speculative tech exposure
- internally capital allocated
Not an index, obviously, but philosophically it scratches the same itch.
My shortlist by objective
| Goal | Best fit |
|---|---|
| Reduce Mag-7 concentration | RSP |
| Only profitable smaller companies | IJR / SPSM |
| Highest business quality | QUAL / SPHQ |
| Valuation discipline | PRF / FNDX |
| Reduce U.S. bubble exposure | VEA / IEFA |
| “Old economy capitalism” | Berkshire Hathaway |
Personally, the most intellectually coherent replacement for a plain S&P 500 fund right now is probably:
- 40% equal-weight U.S.
- 30% quality factor
- 30% international developed
That keeps the advantages of indexing while reducing dependence on a few ultra-expensive AI-linked firms.
And the critique in the article you linked is directionally reasonable: once an index becomes primarily a distribution mechanism for passive flows, index construction rules matter a lot more than people used to think.
My Thoughts
AI once again saves me hours of research and some nuggets of goal to go research to deal with the S&P 500 issue. I think the changes to S&P 500 were done to dump a bunch of private equity garbage and let passive index investors hold the bag when it all goes south. It’s no different than the game played during 2008 financial crisis where large firms dumped bad loans onto the market causing the collapse.
We are definitely in for a repeat somehow. I don’t know when or how it will happen but rest assured history repeats itself. I am taking proactive approach and dumping S&P 500 related investments directly tied to it. I also hedge most of my positions to avoid losses.
Share The Wealth
Are you going to be a passive sheep and let your 401k keep buying S&P 500 funds or are you going to herd yourself somewhere else?