While there has been a proliferation of index-based products designed to offer beta solutions across market segments, not all index-based products are created equally. Equal weight strategies generate unbiased exposure to market risk factors, providing potential for enhanced risk control and opportunity to capture long-term equity outperformance.
Equal weight investing is a smart beta strategy that does exactly what its name implies—it equally weights every stock in the strategy regardless of its market capitalization. In contrast to traditional cap-weighted approaches—where each stock is weighted based on its size (or market capitalization), potentially resulting in increased concentration risk—equal weight investing creates unbiased exposure to all stocks. No one stock is more important than any other. Equal weighting can be applied to broad market indices, such as the well-known S&P 500® Index, as well as to sectors.