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 April.
The S&P 500 EWI outperformed the S&P 500 by 2% in April, bringing equal weight’s trailing 12-month relative performance into positive territory. Key performance contributors for equal weight were the underweight to communication services 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.
Eight out of 11 equal-weight sectors outperformed their cap-weighted counterparts in April; the exceptions include healthcare, energy, and real estate. Looking at the trailing 12-month performance of the equal-weighted and cap-weighted indexes, equal weighting has outperformed in both the energy and real estate sectors over the longer time period.
Over the past 12 months, the energy sector was the leader in both equal- and cap-weighted; however, isolating April, consumer staples was the top-performing equal-weight sector, returning 3.2%.
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.
For more news, information, and strategy, visit our Portfolio Strategies Channel.