The S&P 500 Equal Weight Index outperformed the S&P 500 by 4% during the third quarter.
The S&P 500 Equal Weight’s outperformance during the third quarter represented a reversal from its underperformance during the first half of the year. Equal weight’s trailing 12-month underperformance decreased to 7.5% after last quarter’s strong showing.
The S&P 500 climbed 5.6% between July 1 and Sept. 30, while the equal-weighted index, tracked by the Invesco S&P 500 Equal Weight ETF (RSP ), gained 10.5% during the same period.
Year to date through Sept. 30, the S&P 500 gained 22.1%, while the equal-weighted index climbed 15.2%.
See more: Moving Averages: S&P Finishes September 2024 Up 2.0%
Under the Hood of Equal-Weight Outperformance
During the third quarter, six of 11 equal-weighted sectors outperformed their cap-weighted counterparts. The sectors that outperformed includes industrials, financials, communication services, consumer discretionary, healthcare, and technology.
Utilities was the best performer in the third quarter for both equal-weighted and cap-weighted sector indexes, up 19.2% and 19.4%, respectively.
RSP tracks the S&P 500 Equal Weight Index, which effectively gives every security in the S&P 500 an equal weight at each quarterly rebalance. Equal weight’s methodology of selling relative winners and buying relative losers adds the small size and value factor tilts to a portfolio.
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 Invesco ESG S&P 500 Equal Weight ETF (RSPE ) offers the same methodology as RSP, but screens for ESG criteria. RSPE has fewer holdings, as it starts with the S&P 500 universe but excludes ESG offenders. This gives each security a slightly larger weight in RSPE compared to RSP.
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