What is 'Equal Weight'
Equal weight is a type of weighting that gives the same weight, or importance, to each stock in a portfolio or index fund, and the smallest companies are given equal weight to the largest companies in an equalweight index fund or portfolio. Equal weighting differs from the weighting method more commonly used by funds and portfolios in which stocks are weighted based on their market capitalizations. Equalweighted index funds tend to have higher stock turnover than marketcap weighted index funds, and as a result, they usually have higher trading costs.
BREAKING DOWN 'Equal Weight'
Many of the largest and most wellknown market indices are either market capweighted or priceweighted. Market capweighted indices, such as the Standard & Poor's (S&P) 500, give greater weight to the biggest companies according to market capitalization. Largecaps such as Apple and General Electric are among the biggest holdings in the S&P 500. Priceweighted indices, such as the Dow Jones Industrial Average (DJIA), give larger weightings to stocks with higher stock prices. In the Dow, as of May 2018, Boeing, United HealthGroup and Goldman Sachs are the largest components.
The concept of equally weighted portfolios has gained interest due to historical performance and the emergence of several exchangetraded fund (ETF) options. Standard & Poor's has developed more than 40 different equalweight indices based on combinations of market cap, market and sector.
Performance of EqualWeighted Indices
Smallcap stocks are generally considered to be higher risk, higher potential return investments compared to largecaps. In theory, giving greater weight to the smaller names of the S&P 500 in an equalweight portfolio should increase the return potential of the portfolio. Historically, this has been the case for the S&P 500. From 2003 through 2015, a $10,000 investment in the traditional S&P 500 index would have turned into $29,370. During that same period, the same investment in the S&P 500 Equal Weight Index (EWI) would have turned into $38,866.
Examples of EqualWeighted Funds
Guggenheim offers more than a dozen different equalweight fund strategies covering not only major indices such as the S&P 500 but also many of the market's major sectors. The Guggenheim S&P 500 Equal Weight ETF, for example, provides the same exposure to the smallest companies in the S&P 500 as it does to corporate giants such as General Electric and ExxonMobil.
Other examples of equalweight index ETFs include the Guggenheim Russell 2000 Equal Weight ETF, the First Trust NASDAQ100 Equal Weighted Index Fund and the Index Funds S&P 500 Equal Weight ETF.

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