The S&P 500 Equal Weight Index is outperforming its cap-weighted counterpart on Thursday with certain sectors overweight in the EWI contributing to the increase.
Utilities and real estate are the two U.S. equity sectors that have posted the largest gains on Thursday, up 1.7% and 1.2%, respectively, by mid-afternoon, according to Koyfin. The S&P 500 EWI weights the utilities and real estate sectors at 6.2% and 5.7% of the index, respectively, as of May 31. The cap-weighted S&P 500 gives the two sectors substantially less influence in the index, weighting utilities at 3.0% of the index and real estate at 2.8% as of May 31, according to S&P Dow Jones Indices.
Investors can add exposure to the unique weighting methodology with the Invesco S&P 500 Equal Weight ETF (RSP), which tracks the S&P 500 EWI.
Equal weighting is a strategy that removes size bias by weighing each constituent equally, which results in dramatic changes to the sector breakdown.
The largest sector in both indexes, information technology, is weighted at 15.1% in the EWI version and a whopping 27.1% in the traditional S&P 500.
In the equal weight index, the remaining sectors’ exposures as of May 31 are as follows: industrials (14.1%), financials (12.9%), health care (12.8%), consumer discretionary (11.2%), consumer staples (6.8%), utilities (6.2%), materials (5.9%), real estate (5.7%), energy (5.0%), and communication services (4.3%), according to the S&P Dow Jones Indices.
The S&P 500 weighted by market capitalization as of May 31 looks very different: after information technology, health care (14.4%), financials (11.2%), consumer discretionary (10.9%), communication services (8.8%), industrials (7.8%), consumer staples (6.5%), energy (4.8%), utilities (3.0%), materials (2.8%), and real estate (2.8%).
Equal exposure to smaller companies has historically provided higher return opportunities. The S&P 500 EWI has outperformed the S&P 500 Index based on rolling monthly periods over the past three, five, and 10 years, according to Invesco.
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