An equal-weighted index is an alternative to the common market capitalization index. Rather than tilting the index toward the largest companies, an equal-weight index assigns the same weighting to every stock represented. For example, the S&P 500 gives a 0.2% weight to each of the 500 components, and rebalances quarterly to adjust for changes in market values.
An equal weight index is known to perform better when the market favors small or mid-cap stocks. An equal weight index also avoids excessive valuations, when the market is driven by momentum, reports Investopedia. [Diversifying Away From Apple with Equal-Weight ETFs]
“On April 9 AAPL shares peaked at a 57% year-to-date advance, taking the S&P 500 along for a ride to a near 13% YTD gain. Since then, Apple shares declined nearly 5%, as did the overall market. During this outsized advance, investors have become increasingly vocal as to their concerns surrounding the influence that AAPL and the other mega-caps have on the performance of the overall index,” Sam Stovall wrote in a recent global equity research report. [Apple: Why the Nasdaq-100 ETF is Beating the Market]
Equal-weight ETFs:
- Guggenheim S&P Equal Weight ETF (NYSEArca: RSP)
- Guggenheim S&P Equal Weight Technology ETF (NYSEArca: RYT)
- First Trust NASDAQ-100 Equal Weighted Index Fund ETF (NYSEArca: QQEW)
Tisha Guerrero contributed to this article.