Under the Hood of Equal Weight’s December Outperformance

The S&P 500 Equal Weight Index outperformed its cap-weighted parent in the last month of 2022.

The S&P 500 EWI declined -4.7% in December, outperforming the S&P 500 on a relative basis, which declined -5.8% during the month. The month of negative performance put an end to equal weight and the S&P 500’s short-lived rally, during which the indexes returned 6.7% and 5.6%, respectively, in November, and 9.8% and 7.8%, respectively, in October.

Carrying through the previous month, in December, key performance contributors for equal weight were underweight to information technology and overweight to smaller-caps within consumer discretionary, according to recent commentary from S&P Dow Jones Indices.

Equal weight outperformed in eight months of 2022, with equal weight’s outperformance over 12 months declining slightly to 7% on a relative basis, as of the end of December. In 2022, equal weight declined -11.4% compared to the S&P 500’s decline of -18.1%.

Eight out of 11 equal-weight sectors outperformed their cap-weighted counterparts in 2022. The sectors in which equal weight trailed the S&P 500 were energy, industrials, and healthcare. Energy was the top-performing sector in 2022 for both equal and cap-weighted.

Investors can gain exposure to the equal weight’s outperformance with the Invesco S&P 500® Equal Weight ETF (RSP) or the Invesco ESG S&P 500 Equal Weight ETF (RSPE), which screens for ESG criteria. 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 funds have also historically demonstrated strong returns and introduce the small size and value factors to a portfolio, making both offerings uniquely attractive in the current environment.

For more news, information, and analysis, visit the Portfolio Strategies Channel.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.