The absence of size bias in the S&P 500 Equal Weight Index is a key contributor to its outperformance in the first half.
The S&P 500 Equal Weight Index is a size-neutral version of the S&P 500, weighting each constituent company equally so that a small group of companies does not have an outsized impact on the index — a methodology that has paid off in the current market environment, which is characterized by higher volatility and wide disparity among sectoral performance.
Mega-caps were hit particularly hard in the first half, with the S&P 500 Top 50 posting a loss of 22%, underperforming the S&P 500 by 2%, according to Anu Ganti, senior director, index investment strategy, S&P Dow Jones Indices.
A natural consequence of the weakness among mega-caps was a tailwind for equal weight because of its small-cap bias, with the index outperforming the S&P 500 by 3% so far this year, according to Ganti.
The YTD performance attribution of the S&P 500 Equal Weight Index illustrates that the underweights to IT and communication services were key contributors to equal weight’s outperformance.
Investors can gain exposure to the S&P 500 Equal Weight Index with the Invesco S&P 500 Equal Weight ETF (RSP ). RSP, which has $29.3 billion in assets under management, charges a 20 basis point expense ratio. The fund has seen $3 billion in net inflows year-to-date, according to VettaFi.
With quarterly rebalances to maintain equal weightings, RSP’s methodology imposes a strict “buy low/sell high” discipline, trimming allocations to companies that have grown and increasing allocations to companies that have underperformed, according to Invesco.
For more news, information, and strategy, visit our Portfolio Strategies Channel.