The S&P 500 Equal Weight index has outperformed the standard market-cap weighted version over the long term1
The S&P 500 index has seen concentration in the largest stocks rise to record highs and valuations stretched, driven by the Magnificent Seven
History shows that markets often revert to the mean, which could present an opportunity for investors looking to gain diversified exposure to US equities
The equal weight version of the S&P 500 index outperformed the standard, market-cap weighted index by an average of 1.05% annually, until 20232. Since then, however, the S&P 500 Equal Weight Index has underperformed, as the returns of the Magnificent Seven (“Mag7”) stocks have overshadowed the rest of the index. Many of today’s investors may wish to consider gaining exposure to the S&P 500 Equal Weight index because of three factors: high concentration, stretched valuations and mean reversion of excess returns.
With the 10 largest companies currently making up 40% of the weight in the S&P 500, concentration risk has never been higher (see Fig.1). Furthermore, many of these highly volatile names sit in similar industries, leading to higher pairwise correlation in the top 10 names than the broader index. This further exacerbates the S&P 500’s concentration problem.
Source: Bloomberg, Invesco, as at 9 October 2025. Past performance does not predict future returns. An investor cannot invest directly in an index.
Market-cap weighting naturally underweights the future disruptors. In the ‘80s and ‘90s, the S&P 500 was led by the likes of energy, consumer staples and pharmaceutical firms. IBM was the only technology name in the top 10. The leadership gradually started to evolve with Microsoft entering the top 10 in the early 2000s, and later Apple, and then Alphabet and Amazon. The current top 10 represented a mere 4% of the S&P 500 index 20 years ago3. Since April 1999, the top 10 names have contributed 26% to the index’s return, but this rose to over 58% in 2025 year-to-date through October.
High valuations in mega caps have pushed the S&P 500’s P/E ratio to 27.8, a 29% premium over S&P 500 Equal Weight (see Fig.2). The divergence widened during COVID as the shift to working from home benefited many technology names. The excitement surrounding AI propelled the S&P 500’s valuations even further.
Source: FactSet. Comparing the P/E ratio of the S&P 500 market-cap weighted (MC) versus the S&P 500 Equal Weight (EW) indices from 30 June 2010 to 30 September 2025.
The anticipation of high growth across select companies often drives rising valuations and increased market concentration, as has been witnessed recently. Historically, over the past 30 years, it has been challenging for these “superstar” companies to sustain exceptional growth over extended periods. Over time, these companies often revert towards normalcy, leading to market valuations and concentration mean-reverting. For example, over the past 30 years, only 3% of companies stayed in the top quintile for sales growth for three consecutive years (see Fig.3).
Source: FactSet, measuring annual sales growth of S&P 500 companies from 1995 to 2024.
An equal-weighted approach may help mitigate some of the valuation risk present in the S&P 500 and its current tilt towards growth. This mitigation may provide less sensitivity to lowered growth expectations.
The S&P 500 Equal Weight index is currently experiencing its worst relative drawdown in 25 years (see Fig.4), driven by historically narrow market performance.
Historically, high market concentration in the S&P 500 has often been followed by increased market breadth, which over longer time periods has often benefited the S&P 500 Equal Weight’s performance relative to the S&P 500 index.
During 2021, the Mag7 led performance, returning 51.5% v the S&P 500’s 28.7%, but it peaked towards the end of that year and mean-reverted in 2022. During this time of mean-reversion, Equal Weight outperformed the Mag7 by 34%. This story began again in 2023, with the Mag7 driving 61% of the market’s return through June 20244. In Q3 2024, the market scrutinised AI’s valuations and the timeline for realising their earnings expectations plus the Fed’s rate cuts led to market breadth expansion and the other 493 names in the S&P 500 outperforming the Mag75.
However, with the S&P 500’s market concentration now at an all-time high and with valuations stretched, the need for diversification continues to resonate and many investors are turning to equal weight to diversify their portfolio.
We offer investors a choice between physical and swap-based exposures to the S&P 500 Equal Weight index. For more information on risks, please refer to the legal documents or here.
The Invesco S&P 500 Equal Weight UCITS ETF uses physical replication, meaning it buys and holds all the constituents of the S&P 500 Equal Weight index, in the same proportion, and rebalances quarterly when the index does.
The Invesco S&P 500 Equal Weight Swap UCITS ETF uses a swaps-based approach to replicate the performance of the index. The ETF holds a basket of quality securities, but not necessarily those in the index, and uses swap contracts to provide the return of the index.
An investment in either of these funds is an acquisition of units in a passively managed, index-tracking fund rather than in the underlying assets owned by the fund.
Unlike market-cap indices, which naturally concentrate exposure in the largest companies, Equal Weight strategies assign the same weight to each constituent. Invesco’s Equal Weight UCITS ETFs offer access to this approach across both global, US and European markets.
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