Weighting stocks on an equal basis, also known as the equal-weight methodology, is one of the oldest versions of the phenomenon now known as smart beta. As such, the equal-weight methodology is prevalent among exchange-traded funds (ETFs), including both broad market and sector funds. One of the most venerable equal-weight ETFs is the Guggenheim S&P 500 Equal Weight ETF (RSP), which is fast-approaching its 14th birthday. As its name implies, RSP follows the S&P 500 Equal Weight Index, an equal-weight version of the S&P 500. Home to nearly $13 billion in assets under management, RSP is also one of the largest equal-weight ETFs on the market today.

While that figure is dwarfed by traditional, cap-weighted S&P 500-tracking ETFs, what is not diminished is RSP's lengthy track record of outperforming standard S&P 500 strategies. Over the past three years, RSP has topped the cap-weighted S&P 500 in 74 percent of rolling monthly periods, according to Guggenheim data. For the five years ending March 31, 2017, that number grows to 83 percent of rolling monthly periods, but more important are RSP's 10-year returns. During that span, RSP has topped the cap-weighted S&P 500 in 100 percent of rolling monthly frames, according to issuer data. (See also: S&P 500 ETFs: Market Weight vs. Equal Weight.)

"The equal-weight approach was implemented to eliminate the large-cap bias of traditional capitalization-weighted products," said Guggenheim. "The resulting reduction in concentration risk combined with a quarterly rebalance​ has helped RSP consistently outperform the S&P 500 on a 10-year rolling basis since the fund's 2003 inception."

Critics often assert that outperformance offered by equal-weight funds and strategies is mostly attributable to the size factor, or the emphasis these funds place on smaller stocks relative to their cap-weighted counterparts. Even if that is true, RSP is not significantly more volatile than the S&P 500. RSP's standard deviation of 10.7 percent is just 30 basis points above the same metric on the cap-weighted S&P 500. (See also: 3 Types of Indexing for ETF Successs.)

RSP's sector weights differ significantly from the standard S&P 500. For example, the cap-weighted S&P 500 allocates over 22 percent of its weight to technology stocks, the index's largest sector weight. On the other hand, RSP's technology exposure is just 13.6 percent. RSP's largest sector weight is 16.2 percent to consumer discretionary, an overweight of 400 basis points relative to the S&P 500. Financials, the second largest sector weight in the cap-weighted S&P 500 at 14 percent, are RSP's fourth largest sector weight at 12.4 percent. (See also: Equal Weight Excellence for This ETF.)