Equal Weight Outperforms the S&P 500 by 400 Basis Points YTD

The S&P 500 Equal Weight Index is looking particularly good right now against the backdrop of the S&P 500 Index.

The S&P 500 EWI slightly outperformed the S&P 500 during the third quarter, building upon its outperformance during the first half of the year, in which equal weight outperformed the S&P 500 by 2% in both the first and second quarters. 

While the S&P 500 EWI’s relative outperformance each quarter this year has been small – no greater than 2% – it’s adding up, as the index is outperforming the S&P 500 by over 400 basis points, on a total return level, year to date as of October 20, according to YCharts.

Key performance contributors for equal weight during the third quarter were the underweight to communication services and the overweight to utilities, according to S&P Dow Jones Indices.

Investors can gain exposure to the S&P 500 EWI with the Invesco S&P 500® Equal Weight ETF (RSP) or the Invesco ESG S&P 500 Equal Weight ETF (RSPE), which screens for ESG criteria. 

RSPE is more concentrated, with 187 holdings compared to 504 holdings in RSP. At each rebalance, the securities in RSPE are each weighted at around 0.6% whereas each security is weighted at around 0.2% in RSP.

Equal-weighted strategies can provide diversification benefits and reduce concentration risk by weighting each constituent company equally so that a small group of companies does not have an outsized impact on the index.

The equal weighting methodology introduces several factor tilts to a portfolio. As of September 30, the S&P 500 Equal Weight has a tilt towards small size (47.8%), value (33.4%), and dividend (15.6%) compared to the S&P 500. It also has a tilt away from quality (-23.7%), low volatility (-6.0%), high beta (-4.5%), and momentum (-3.1%), according to S&P Dow Jones Indices.

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