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.
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