The S&P 500 Equal Weight has amassed a track record of outperforming its parent index as well as active U.S. equity funds.
Since the index’s 2003 launch, nearly all actively managed U.S. equity mutual funds underperformed the S&P 500 Equal Weight index, according to recent research from S&P Dow Jones Indices. The S&P 500 Equal Weight comprises all constituents in the S&P 500, but gives every security an equal weight at each quarterly rebalance.
Notably, 98.6% of active U.S. equity funds have underperformed the S&P 500 Equal Weight over the past 20 years, according to S&P Dow Jones Indices. The percentage of active funds underperforming equal weight ticks up to 99.8% when only looking at only U.S. large-cap mutual funds.
See more: When Does Equal Weight Outperform?
“Outperforming the broader market is hard for active strategies,” Todd Rosenbluth, head of research at VettaFi, said. “However, it is even harder when the active funds are being compared to an index approach more akin to how they actually are managing.”
Rosenbluth added: “Many active funds try to avoid concentrating exposure to a handful of stocks like the market cap weighted S&P 500. They often favor some of the more moderately sized large-cap companies in an effort to gain an edge of the widely followed S&P 500."
Equal weight has not only outpaced domestic active funds, but it has also generated a total return higher than S&P’s benchmarks for mid- and small-cap U.S. equities since January 2003. The equal weight index has also outpaced both the S&P 500 Growth and S&P 500 Value indexes during that period.
How to Access the S&P 500 Equal Weight
The (RSP ) provides exposure to the S&P 500 Equal Weight in a cost-effective and highly liquid structure. RSP charges just 20 basis points, while the average actively managed equity mutual fund charges 66 basis points, according to the Investment Company Institute.
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