Equal weight investing refers to allocating equal dollar amounts to each stock or asset in a portfolio, rather than weighting by market capitalization like traditional indexes. This approach provides a more diversified portfolio and reduces concentration risk. Some well-known equal weight indexes and ETFs include the Invesco S&P 500 Equal Weight ETF (RSP), Guggenheim S&P 500 Equal Weight ETF (EW), and Invesco Russell 1000 Equal Weight ETF (EQAL). These funds provide exposure to the same companies as traditional cap-weighted indexes but with reduced risks.
Invesco S&P 500 Equal Weight ETF (RSP) – Most popular equal weight ETF
The Invesco S&P 500 Equal Weight ETF (RSP) is the largest and most liquid equal weight ETF with over $30 billion in assets under management. It tracks the S&P 500 Equal Weight Index and provides equal exposure to all 500 stocks in the S&P 500. Top holdings include Raytheon Technologies, Baker Hughes, Amgen and Equinix, each accounting for about 0.4% weight. RSP has consistently outperformed the cap-weighted S&P 500 over the past 10 years, demonstrating the power of equal weighting in reducing concentration risk while maintaining diversified exposure to large US companies.
Guggenheim S&P 500 Equal Weight ETF (EW) – Low cost alternative
The Guggenheim S&P 500 Equal Weight ETF (EW) is another option for cost-conscious investors looking for equal weighted exposure. This ETF has an expense ratio of just 0.20%, making it one of the cheapest equal weight funds available. EW tracks the same equal weight version of the S&P 500 and provides balanced exposure across all 11 sectors. Top holdings are similar to RSP but have slightly different weightings. While past returns are comparable over the past 5-10 years, the ultra-low fees give EW an advantage going forward.
Invesco Russell 1000 Equal Weight ETF (EQAL)- Mid & small caps
For investors interested in equal weight exposure beyond just large caps, the Invesco Russell 1000 Equal Weight ETF (EQAL) is a good choice. This fund tracks the equal weight version of the Russell 1000 index, providing exposure to the full market cap spectrum from mega caps down to mid and small caps. EQAL holds over 1,000 positions with each accounting for about 0.1% weight. The reduced concentration risk is especially beneficial for mid and small caps that can have elevated volatility. EQAL provides a lower cost way to access equal weight small and mid caps.
Horizon Kinetics ISE Wealth Index ETF (INCL) – Fundamental weighted
The Horizon Kinetics ISE Wealth Index ETF (INCL) takes a unique approach by weighting holdings based on balance sheet strength and overall company health rather than market cap. The index selects 125 stocks based on wealth-creating factors like return on capital, capital allocation ability, and growth. Top holdings include Texas Pacific Land and Alphabet. While not a traditional equal weight fund, INCL exemplifies how alternative weighting schemes can lead to differentiated returns and lower concentration risk.
Equal weight investing provides a simple yet effective way to improve portfolio diversification and reduce concentration risk inherent in market cap weighted indexes. Leading ETFs from Invesco, Guggenheim and Horizon Kinetics allow investors to access equal weight strategies across various indexes and market segments.