Equal-weight indexes have often outperformed their market cap-weighted counterparts, as demonstrated again by the S&P 500 Equal Weight Index during the month of May, maintaining equal weight’s trailing 12-month relative outperformance.
The S&P 500 EWI outperformed the S&P 500 by 0.8% in May, a continuation from the 2% outperformance demonstrated in April. Key performance contributors for equal weight were the underweight to technology and the overweight to energy, according to S&P Dow Jones Indices.
This momentum is continuing from a strong first quarter, in which the S&P 500 EWI outperformed the S&P 500 by 2% during the first three months of the year, according to S&P Dow Jones Indices U.S. Equal Weight Sector Dashboard.
Nine out of 11 equal-weight sectors outperformed their cap-weighted counterparts in May. The sectors in which the EWI trailed its cap-weighted counterpart by 0.1% and 0.4% were financials and healthcare, respectively. Looking at the trailing 12-month performance of the equal-weighted and cap-weighted indexes, equal weighting has outperformed in the financial sector over the longer time period.
Over the past 12 months, the energy sector was the leader in both equal- and cap-weighted. Energy was the top-performing sector for both indexes in May.
An equal-weight strategy, such as the Invesco S&P 500® Equal Weight ETF (RSP) or the Invesco ESG S&P 500 Equal Weight ETF (RSPE), 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 funds have also demonstrated strong returns and a tilt toward smaller, value companies, making both offerings uniquely attractive in the current environment.
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