![]() While both RSP and SPY need to be adjusted periodically to ensure they contain only the qualifying top 500 companies in the US, the RSP needs to be rebalanced to maintain equal weighting. The latter is the oldest ETF still trading (from 1993).Īlthough these two ETFs invest in the same companies, they can behave very differently. There are ETFs that track each of the two indexes - the Invesco S&P 500 Equal Weight ETF (RSP) tracks the EWI, while the State Street SPDR S&P 500 (SPY) tracks the market-weighted index. To understand the difference between the two indexes, think of the S&P 500 like a pie chart: In the market-cap-weighted index, the pie is broken up into slices (component companies) based on market cap, but in the equal-weight index, all the slices are the same size, regardless of the size of the company. While the S&P 500 EWI includes the same constituents as the market-capitalization-weighted S&P 500, each company in EWI is allocated a fixed weight - 0.2% of the index total at each quarterly rebalance. And, the sector weight is calculated by summing up the individual weights of the companies that will make up that sector.įor the S&P 500 Equal Weight Index, on the other hand, each of the component stocks is weighted equally. The weight of a stock in the index is equal to the market cap of that stock divided by the total market cap of all the stocks in the index. So, stocks with the largest market capitalizations or the biggest values, have the highest weights in the index. The traditional S&P 500 index is weighted by the market capitalization of the component stocks. How is it different from the S&P 500 index? The S&P 500 is heavily tilted to the few biggest mega-caps and thus they make a huge part of the total returns. For example, if a sector contains 45 stocks, then the weight of the sector would theoretically be (45 / 500) x 100 = 9%. The sector weight is a direct function of the number of companies in the sector. This simple change to the weighting formula changes the results drastically - the returns are not the same. ![]() So, even Apple, the largest stock in the US, has the same weight as the smallest company in the index. In other words, both S&P 500 index types have the same component stocks but the weighting formula is changed - every stock in the index has the same weight, regardless of how large or small the company is. S&P 500 Equal-Weight Trading Strategy – ending remarksĬreated in 2003 by Standard & Poor’s, the S&P 500 Equal Weight index is an index of the top 500 companies in the US, but instead of weighting each company in the index based on its size - as it is with the traditional, market-cap-weighted S&P 500 index - every company is given equal weight in the index.How is it different from the S&P 500 index?.What is the S&P 500 equal-weight index?. ![]()
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