Insight Equal weight ETFs: reducing market concentration

ETFs tracking market-cap-weighted indices are a simple and widely used way to access equity markets. As companies rise in value, their index weight rises too, allowing investors to participate in the success of the market’s largest businesses.

That feature is both a strength and limitation. When market leadership narrows, an allocation that appears broadly diversified can become increasingly dependent on a relatively small number of stocks.

The S&P 500 Index provides a clear example. Its market-cap-weighted construction means that the companies which have risen furthest in value also carry the greatest influence within the index.

Equal weight ETFs offer a different way to access the same market. Rather than allocating more to a company because it is larger, an equal weight index gives each constituent the same weight at every rebalance. In the S&P 500 Equal Weight Index, that means holding the same 500 companies as the S&P 500 but resetting each to approximately 0.2% weight every quarter.

It’s a simple, different approach, but one that provides meaningful exposure to the full range of opportunities that an index has to offer.

What changes when every company has an equal weight?

By breaking the link between company size and index weight, equal weighting changes how risk and return are distributed across the portfolio:

• Less concentration: No single stock can dominate the index, reducing its dependence on a narrow group of market leaders.
• Broader participation: Companies further down the size-scale receive a more meaningful allocation and therefore have greater influence on performance.
• Disciplined rebalancing: At each rebalance, the index trims constituents whose weights have risen and reallocates towards those whose weights have fallen, returning every company to the same starting point. Equal weighting will not remove equity-market risk, nor will it perform better in every environment. When the largest companies lead the market, a market-cap-weighted index is likely to benefit more because it holds more of them. Equal weight tends to have a stronger relative opportunity when performance broadens and more companies begin to participate.

The S&P 500: Concentration, valuations, and market breadth

The difference between the two approaches is particularly visible in the US market.

The 10 largest companies in the S&P 500 now account for 37% weight in the index, up from less than 20% in 2014. They have not only grown in weight but have also contributed a disproportionate share of returns in recent years. In 2014, the 10 largest names contributed 19% of the index’s return. That figure had risen to more than 50% in 2023-2025.

Their strong performance has rewarded investors, but it has also increased the index’s dependence on the prospects and growth expectations of a relatively small group of companies.

This brings three features of the current US market into focus:

• Market leaders change: Today’s largest companies may not remain at the top indefinitely. Equal weighting reduces dependence on current leaders without requiring investors to predict which companies will take their place.
• Valuations differ: As at 31 August 2026, the standard S&P 500 had a price-to-earnings ratio of 26.3, a 29% premium to the equal weight index. Although both contain the same companies, the way they allocate to them creates different valuation, sector, and company-size characteristics.
• Market participation may broaden: Recent S&P 500 returns have been led by a relatively small number of companies. If leadership becomes more widely distributed, equal weighting allows more of the index’s constituents to make a meaningful contribution.

The S&P 500 Equal Weight Index outperformed the S&P 500 over the long term to 2023 but subsequently fell behind as the Magnificent Seven overshadowed the rest of the market. That does not prove a reversal is imminent. It shows that equal weight offers a genuinely different form of US equity exposure, one that is less reliant on continued leadership from the index’s largest companies.

Equal weighting across global and European markets

Although particularly evident in the S&P 500, concentration is not solely a US issue. Equal weighting can also be applied across global and European equities, with the same underlying principle producing different outcomes in each market.

• Global equities: As at 31 August 2026, the US represented 71% of the market-cap-weighted MSCI World Index. Its equal-weighted counterpart distributed exposure more evenly across approximately 1,300 constituents, reducing the US allocation to only 40% and increasing the representation of Europe, Japan, and other developed markets.
• Eurozone equities: The 10 largest constituents of the EURO STOXX 50 represented more than 40% of the index as at 31 August 2026. Equal weighting reduces their influence by allocating evenly across all 50 companies.
• Broader European equities: The same approach can be applied to the MSCI Europe Index, providing equal exposure to 400-plus companies across Europe. This provides a wider expression of European equities than the more concentrated EURO STOXX 50.

The regional options provide exposure to different markets, but the core approach remains the same when adding equal weight ETFs to a portfolio: Company size doesn’t have to determine a company’s influence within your investments. 

Finding the right balance

Equal weight is not inherently better than market-cap weighting. The two approaches distribute exposure differently and are likely to perform differently as market leadership changes.

Investors should therefore consider the role they want the exposure to play, the market they want to access, and the risks already present elsewhere in their portfolio.

Invesco’s equal weight ETF range provides access across US, global, and European equities, allowing investors to select the market and benchmark that best align with their objectives.

Learn more about Invesco’s Equal Weight ETFs.