The S&P 500 (SPX) Equal Weight Index is currently lagging the traditional cap‑weighted S&P 500 (SPX) by the widest margin in more than 24 years, reflecting extreme concentration in a small group of mega‑cap leaders. SPDR S&P 500 ETF Trust (SPY) has been pulled higher primarily by top weights such as Apple (AAPL) and other large-cap U.S. equities.
Historically, large performance gaps between equal‑weight and cap‑weight S&P 500 (SPX) exposures have tended to be cyclical rather than permanent. After the late‑1990s tech concentration peak, subsequent years saw prolonged phases where equal‑weight indices outpaced cap‑weighted benchmarks as leadership broadened and prior winners stalled or de-rated.
From 2003 to 2022, the S&P 500 Equal Weight Index outperformed the cap‑weighted S&P 500 by roughly 1.5% per year, though that advantage was delivered through multiple 1-3 year mini‑cycles of narrow leadership followed by catch-up from the broader constituency. Episodes around 2020 also showed mega‑cap dominance giving way to periods of stronger equal‑weight performance.
At today’s extremes, Invesco S&P 500 Equal Weight ETF (RSP) and related equal‑weight products such as RSPC sit on the weaker side of the spread, while SPY and its largest holdings benefit from current concentration. Any future mean reversion in this relationship would likely appear as either renewed strength in equal‑weight vehicles relative to SPY or a phase of relative underperformance from mega‑cap leaders like AAPL.
Terminology
- 01Cap-weighted: Index method where each stock’s weight equals its market capitalization share.
- 02Equal-weight: Index method giving each constituent the same portfolio weight, regardless of size.
- 03Index concentration: Degree to which index performance depends on a small group of constituents.