Under the Hood of Equal Weight's Outperformance Last Month

The S&P 500 Equal Weight Index outperformed again in November, as the gap between equal weight and the S&P 500 last month was in the top quintile of historical experience, according to S&P Dow Jones Indices.

The S&P 500 EWI increased 6.7% in November, outperforming the S&P 500, which gained 5.6% during the month. Key performance contributors for equal weight last month were the underweight to the information technology and overweight to smaller-caps within consumer discretionary, according to recent commentary from S&P Dow Jones Indices.

This is the second consecutive month of positive performance from both indexes. In October, the S&P 500 EWI increased 9.8%, outperforming the S&P 500 by 2% during the month. 

Equal weight has consistently outperformed in 2022, with equal weight’s outperformance over a 12-month period climbing to 8% on a relative basis, as of the end of November. Year-to-date through the end of November, equal weight has declined -7.1% compared to the S&P 500’s decline of -13.1%.

Five out of 11 equal-weight sectors outperformed their cap-weighted counterparts in November, a decrease from seven in October. The sectors in which equal weight trailed the S&P 500 were materials, trailing by 0.7%; industrials, lagging by 0.9%; real estate, trailing by 0.2%; financials, trailing by 1.4%; consumer staples, trailing by 1.5%; and communication services, trailing by 2.8%.

Notably, equal weight outperformed the S&P 500 by 7.9% in the consumer discretionary sector.

Looking at the trailing 12-month performance of the equal-weighted and cap-weighted indexes, equal weighting has outperformed in the materials, real estate, financials, consumer staples, and communication services sectors over the longer period.

Energy was the top-performing sector in November for both equal and cap-weighted and over the past 12 months.

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.

For more news, information, and analysis, visit the Portfolio Strategies Channel.