In this graphic, we compare the performance of the S&P 500 and the S&P 500 Equal Weight Index (EWI) since Sept. 2019.The regular S&P 500 is a market-cap weighted index, which means that its constituents are weighted by their market capitalization. As a result, larger companies like Apple, Nvidia, and Microsoft make up a bigger portion of the index.The S&P 500 EWI includes the same constituents but allocates each company a fixed 0.2% weight.
Data and Key Takeaways
The performance data shown in this graphic is based on the SPDR S&P 500 ETF Trust (Ticker: SPY) and the Invesco S&P 500 Equal Weight ETF (Ticker: RSP).SPY is is the largest ETF tracking the S&P 500 ($585B in AUM), while RSP is the largest ETF tracking the S&P 500 EWI ($64B in AUM). The large difference in AUM between these two leading ETFs is a sign of the EWIs lower popularity.The following table shows the percentage growth of both indexes over the past several years as of September.
Looking past 2020 as an outlier year due to COVID-19, the S&P 500 EWI mostly kept up with the S&P 500—until 2023.Since then, the Magnificent 7 tech stocks have greatly outperformed the market, benefiting the market-cap weighted S&P 500 because of its higher concentration in these large companies.For context, Nvidia alone was responsible for 20% of the S&P 500’s gains over the first three quarters of 2024.The S&P 500 EWI, on the other hand, has missed out on these gains because the primary growth drivers (e.g. Nvidia) only make up 0.2% of the index.
Why Follow the EWI?
An investor might choose to invest in an S&P 500 EWI product if they were concerned about diversification. In a scenario where large-cap companies like Apple underperformed, the EWI could potentially mitigate this risk.More By This Author:Charted: The Biggest U.S. Stock Market Crashes Since 1970Ranked: Countries With The Highest GDP Per Capita In 2024 Visualizing The S&P 500’s Domestic And Foreign Revenues
