Equal Weight Investing
Source: FactSet Research Systems, Inc., as of March 31, 2018.
The equal weight advantage
Equal weight investing is a smart beta strategy that does exactly what its name implies—it simply weights every stock in a portfolio equally, regardless of how small or large it is. Equal weight investing is very different from the traditional cap-weighted method—where each stock is weighted based on its size (or market capitalization). Cap-weighting often favors the largest stocks in the strategy, which results in the performance of few dominating the rest and increasing concentration risk.
Investors who want to invest in a broad market index, but don't want their investment to be dependent on the performance of a few large companies, may find an equal weight strategy to be an attractive choice. It's important to note that while equal weighting reduces single-stock concentration, some indices may still be concentrated in specific market segments.