Equal Weighting The S&P 500

One of the decisions I made a few years ago was to largely exchange the SPDR S&P 500 ETF Trust {SPY} in our index investment strategies with an equal weighted index.  I have been using the Rydex S&P Equal Weighted Index {RSP}.  So far that has worked out OK. Bespoke Investments is out this morning with a chart comparing the performance of an equal weighted index to the S&P 500 itself.  So far the equal weighted index is winning.   I'll let Bespoke Investments explain: 

  

"As a market cap weighted index, the largest stocks in the S&P 500 have a bigger impact on the movement of the index than the smallest stocks.  This has hurt the S&P 500 quite significantly recently due to the big fall in Apple (AAPL), which is not only the biggest stock in the index, but the biggest stock in the world (as of now).  The S&P 500 is still a few percentage points below its all-time high, but if you look at the index on an equalweighted basis, where all stocks have the same weighting, it just recently made a new all-time high.  

{Above} is a chart showing the performance of the normal cap-weighted S&P 500 versus the S&P 500 equalweighted index since 1990.  As shown, the equalweight S&P 500 has lapped the cap-weighted S&P 500, and it has surged recently as smaller-cap stocks have outperformed largecaps.  

When the stock market peaked in 2000, largecaps were outperforming smallcaps, as a large portion of the gains were coming from a small percentage of largecap tech firms.  When the market peaked in 2007, it was a different story, as smaller caps drove performance throughout the entire bull market run from 2003-2007.  The current rally is more like the 2003-2007 period.

For those interested, there is an ETF that tracks the S&P 500 equalweighted index.  It trades under the ticker RSP. "

*Long indices related to the S&P 500 including RSP and SPY.  Long AAPL in certain client investment accounts through client mandates to own this stock.

Link:  {Bespoke} S&P 500 At New All-Time Highs