Equal-weight indexes have often outperformed their market cap-weighted counterparts, as demonstrated again by the S&P 500 Equal Weight Index in August, maintaining equal weight’s trailing 12-month relative outperformance.
The S&P 500 EWI declined 3.7% in August, outperforming the S&P 500 by 0.6%. Key performance contributors for Equal Weight last month were the underweight to Communication Services and the overweight to Energy and Utilities, according to recent commentary from S&P Dow Jones Indices.
This momentum is continuing from a strong first half of the year, in which the S&P 500 EWI outperformed the S&P 500 by 2% during both the first and second quarters, according to the S&P Dow Jones Indices U.S. Equal Weight Sector Dashboard.
Seven out of 11 equal-weight sectors outperformed their cap-weighted counterparts in August. The sectors in which the EWI trailed its cap-weighted counterpart were Industrials, trailing by 1.0%, Real Estate, trailing by 0.1%, Health Care, trailing by 0.8%, and Consumer Staples, which tied with a sector decline of 1.8% in both indexes.
Looking at the trailing 12-month performance of the equal-weighted and cap-weighted indexes, equal weighting has outperformed in the Consumer Staples and Real Estate sectors over the longer time period.
Over the past 12 months, Energy was the leader in both the equal- and cap-weighted S&P 500. Energy was the top-performing sector for both indexes in August.
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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