Equal weight investing has become an increasingly popular strategy among stock investors. The idea is to invest in an index fund or ETF that gives equal weighting to all the stocks in an index, rather than weighting them by market capitalization. This article explores the potential benefits of equal weight investing, with a focus on S&P 500 equal weight ETFs from leading providers like Fidelity. Key advantages can include reduced concentration risk and exposure to smaller companies with potential for greater returns. Top picks highlighted include Fidelity’s FEXRX along with offerings from Invesco, Guggenheim and more.
Equal weight S&P 500 funds can provide more diversification
Traditional S&P 500 index funds put more allocation into the largest market cap companies. For example, the market-cap weighted SPY ETF dedicates over 20% just to the 5 biggest stocks. In contrast, equal weighted offerings aim to reduce concentration by giving equal exposure across all 500 components. This means smaller companies get the same weighting as giants like Apple or Microsoft. While there is no guarantee outperformance, research shows the equal weight approach has historically done better over full market cycles.
Access to smaller firms offers return potential
Equal weight index funds also open the door for investors to gain exposure to smaller firms with more room for growth. Numerous studies show small cap stocks have strongly outperformed large caps over long periods. While far from certain, the equal weighting approach mathematically increases exposure to the types of companies that have tended to generate greater returns over time.
Fidelity offers a competitive S&P 500 equal weight mutual fund
Fidelity now provides an equal weight offering with its Fidelity® Extended Market Index Fund (FEXRX). This diversified mutual fund tracks the S&P 500 Equal Weight Index, giving balanced exposure across large, mid and small-cap US stocks. It offers a cost effective way to implement the equal weight passive indexing strategy, with an expense ratio of just 0.045%.
Alternatives from Invesco, Guggenheim and Schwab
Beyond Fidelity, some other top players in S&P 500 equal weight ETFs include Invesco and its RSP fund, along with Guggenheim’s Equal Weight ETF (RSP). These provide similar exposure and diversification benefits as FEXRX. Meanwhile the Schwab Equal Weight US Large-Cap ETF (SCHX) offers another low cost option at just 0.03% expense ratio.
In summary, equal weight S&P 500 funds from leading providers like Fidelity can offer exposure and diversification advantages compared to traditional market cap weighted offerings. Just make sure to evaluate factors like costs, assets under management, tracking error and holdings concentration.