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 equal-weight 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. Equal-weighted index funds tend to have higher stock turnover than market-cap weighted index funds, and as a result, they usually have higher trading costs.

BREAKING DOWN 'Equal Weight'

Many of the largest and most well-known market indices are either market cap-weighted or price-weighted. Market cap-weighted indices, such as the Standard & Poor's (S&P) 500, give greater weight to the biggest companies according to market capitalization. Large-caps such as Apple and General Electric are among the biggest holdings in the S&P 500. Price-weighted 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 exchange-traded fund (ETF) options. Standard & Poor's has developed more than 40 different equal-weight indices based on combinations of market cap, market and sector.

Performance of Equal-Weighted Indices

Small-cap stocks are generally considered to be higher risk, higher potential return investments compared to large-caps. In theory, giving greater weight to the smaller names of the S&P 500 in an equal-weight 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 Equal-Weighted Funds

Guggenheim offers more than a dozen different equal-weight 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 equal-weight index ETFs include the Guggenheim Russell 2000 Equal Weight ETF, the First Trust NASDAQ-100 Equal Weighted Index Fund and the Index Funds S&P 500 Equal Weight ETF.

RELATED TERMS
  1. Weighted

    Weighted is a description of adjustments to a figure to account ...
  2. Overweight

    Overweight refers to a stock in a fund manager's portfolio that ...
  3. Weighted Alpha

    Weighted alpha is a weighted measure of how much a stock has ...
  4. EURO STOXX Sustainability Index

    The EURO STOXX Sustainability Index measures the financial performance ...
  5. Composite Index

    A composite index is a grouping of equities that provide a statistical ...
  6. Price-Weighted Index

    A price-weighted index is a stock market index where each stock ...
Related Articles
  1. Investing

    Investigating the Effectiveness of Equal-Weight ETFs

    Investors should know the ins and outs of equally weighting stocks before considering the related ETFs.
  2. Investing

    Equal Weight Works Across Market Cap Segments

    Equal-weight mid- and small-cap ETFs can generate stellar returns just like their large-cap brethren.
  3. Investing

    Inside Some Benefits of Equal-Weight ETFs

    Over the long run, equal-weight ETFs offer outperformance potential over cap-weighted rivals.
  4. Investing

    S&P 500 ETFs: Market Weight Vs. Equal Weight (RSP, SPY)

    Both S&P 500 and S&P 500 EWI indexes include the same set of stocks, but different weighting strategies give them separate individual properties.
  5. Investing

    A Venerable Equal-Weight ETF (RSP)

    This ETF is one of the seasoned leaders of the equal-weight pack.
  6. Investing

    Equal-Weight Excellence for This ETF

    This equal-weight sector ETF has been a star of the current bull market.
  7. Investing

    The Old Dow Gets a New Look

    This new ETF brings a fresh perspective to the Dow.
  8. Investing

    Spice Up a Bland Sector With This ETF

    A different approach to consumer staples stocks can yield better returns.
  9. Investing

    An Introduction To Sector ETFs

    Find out how sector ETFs can give your portfolio the punch it needs.
RELATED FAQS
  1. How are S&P 500 index components weighted?

    Learn about how components of the S&P 500 are weighted, and how this calculation favors certain stocks in being more representative ... Read Answer >>
  2. What does the S&P 500 index measure and how is it calculated?

    Learn about what exactly the S&P measures and why it's used by market participants as a tool to understand the broader stock ... Read Answer >>
  3. Weighted Average Shares Vs. Outstanding Shares

    What's the difference between weighted average shares outstanding and basic weighted average shares? Read Answer >>
  4. How is the value of the S&P 500 calculated?

    The S&P 500 is a U.S. market index that gives investors an idea of the overall movement in the U.S. equity market. The value ... Read Answer >>
  5. determine the proper weights of costs of capital?

    Learn how to calculate the weights of the different costs of capital, as well as how this is used to determine the weighted ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  2. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  3. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  4. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  5. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  6. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
Trading Center