Under the Hood of Equal Weight's December Outperformance

The S&P 500 Equal Weight Index outperformed its cap-weighted parent in the last month of 2022.

The S&P 500 EWI declined -4.7% in December, outperforming the S&P 500 on a relative basis, which declined -5.8% during the month. The month of negative performance put an end to equal weight and the S&P 500’s short-lived rally, during which the indexes returned 6.7% and 5.6%, respectively, in November, and 9.8% and 7.8%, respectively, in October.

Carrying through the previous month, in December, key performance contributors for equal weight were underweight to information technology and overweight to smaller-caps within consumer discretionary, according to recent commentary from S&P Dow Jones Indices.

Equal weight outperformed in eight months of 2022, with equal weight’s outperformance over 12 months declining slightly to 7% on a relative basis, as of the end of December. In 2022, equal weight declined -11.4% compared to the S&P 500’s decline of -18.1%.

Eight out of 11 equal-weight sectors outperformed their cap-weighted counterparts in 2022. The sectors in which equal weight trailed the S&P 500 were energy, industrials, and healthcare. Energy was the top-performing sector in 2022 for both equal and cap-weighted.

Investors can gain exposure to the equal weight’s outperformance 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. 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 funds have also historically demonstrated strong returns and introduce the small size and value factors to a portfolio, making both offerings uniquely attractive in the current environment.

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