The S&P 500 Equal Weight Index outperformed its capitalization-weighted counterpart on Thursday, with some overweight sectors in the EWI contributing to the upside.
Utilities and real estate were the two U.S. stock sectors that posted the largest gains on Thursday, up 1.7% and 1.2%, respectively, by mid-afternoon, according to Koyfin. The S&P 500 EWI weights the utilities and real estate sectors at 6.2% and 5.7% of the index, respectively, as of May 31. The capitalization-weighted S&P 500 gives both sectors much less influence in the index, weighting utilities at 3.0%. index and real estate at 2.8% as of May 31, according to the S&P Dow Jones indices.
Investors can add exposure to the unique weighting methodology with the Invesco S&P 500 Equal Weight ETF (RSP)which tracks the S&P 500 EWI.
Equal weighting is a strategy that removes size bias by weighting each constituent equally, resulting in dramatic shifts in sector allocation.
The largest sector of the two indexes, information technology, is weighted at 15.1% in the EWI version and 27.1% in the traditional S&P 500.
In the equally weighted index, the remaining sector exposures as of May 31 are: Industrials (14.1%), Financials (12.9%), Health Care (12.8%), Consumer Discretionary (11 .2%), Consumer Staples (6.8%), Utilities (6.2%), Materials (5.9%), Real Estate (5.7%), Energy (5. 0%) and communication services (4.3%), according to the S&P Dow Jones indices.
The market-cap-weighted S&P 500 as of May 31 looks very different: after information technology, healthcare (14.4%), financials (11.2%), consumer discretionary (10.9% ), communication services (8.8%), industrials (7.8%), consumer staples (6.5%), energy (4.8%), utilities (3.0%), materials (2.8%) and real estate (2.8%).
Equal exposure to smaller companies has always provided higher return opportunities.The S&P 500 EWI has outperformed the S&P 500 Index on a rolling monthly basis over the past three, five and 10 years, according to Invesco.
For more news, insights and strategy, visit our Portfolio Strategies Channel.