Article

Three compelling reasons to consider S&P 500 Equal Weight

19 December 2025
Chris Mellor
Chris Mellor
Head of EMEA ETF Equity Product Management
Grocery store produce section symbolizing diversification and balance, reflecting S&P 500 Equal Weight strategy.

Key takeaways

1

The S&P 500 Equal Weight index has outperformed the standard market-cap weighted version over the long term1

2

The S&P 500 index has seen concentration in the largest stocks rise to record highs and valuations stretched, driven by the Magnificent Seven 

3

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.

High concentration

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.

Fig.1: Combined weight of the top 10 names of the S&P 500 index

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.

Stretched valuations

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. 

 

Fig.2: S&P 500 v S&P 500 Equal Weight relative P/E ratio

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). 

Fig.3: S&P 500 companies consecutively in the top quintile of sales growth in past 30 years

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. 

Mean-reversion of excess returns

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. 

Fig.4: S&P 500 Equal Weight relative to S&P 500, rolling 3-year monthly return

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.

Invesco S&P 500 Equal Weight UCITS ETFs

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. 

Find out more about this ETF

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.  

Find out more about this ETF

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.

Related insights

  • Footnotes

    1 Source: Bloomberg, annualised return between 1989 and 2023

    2 Source: FactSet, 30 April 1999 to 31 December 2022

    3 Source: FactSet, as at 31 October 2005.

    4 Source: FactSet, 1 January 2023 to 30 June 2024

    5 Source: Bloomberg. S&P 500 companies excluding Mag7 returned 9.6% v Mag7 companies 5.4%

    10 year performance table

    Performance of indices (%)

    Oct ’24

    -

    Oct ‘25

    Oct '23 -
    Oct '24

    Oct '22 -
    Oct '23

    Oct '21 -
    Oct '22

    Oct '20 -
    Oct '21

    Oct '19 -
    Oct '20

    Oct '18 -
    Oct '19

    Oct '17 -
    Oct '18

    Oct '16 -
    Oct '17

    Oct '15 -
    Oct '16

    3 years to Oct ‘25

    5 years to Oct ‘25

    S&P 500 Net Total Return

    20.98%

    37.42%

    9.59%

    -15.01%

    42.29%

    9.09%

    13.63%

    6.73%

    22.87%

    3.83%

    82.20%

    120.34%

    S&P 500 Equal Weight Net Total Return

    7.98%

    31.35%

    -1.32%

    -10.35%

    48.51%

    -0.06%

    12.13%

    3.99%

    19.72%

    5.04%

    39.94%

    86.31%

    Returns may increase or decrease as a result of currency fluctuations. Source: Bloomberg, Invesco, Performance as a 31 Oct 2025. Past performance does not predict future returns.

    Investment risks

    For complete information on risks, refer to the legal documents.

    The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested.

    Applicable to Invesco S&P 500 Equal Weight UCITS ETF: The fund may be exposed to the risk of the borrower defaulting on its obligation to return the securities at the end of the loan period and of being unable to sell the collateral provided to it if the borrower defaults. The value of equities and equity-related securities can be affected by a number of factors including the activities and results of the issuer and general and regional economic and market conditions. This may result in fluctuations in the value of the fund. The Fund is invested in a particular geographical region, which might result in greater fluctuations in the value of the Fund than for a fund with a broader geographical investment mandate.

    Applicable only to Invesco S&P 500 Equal Weight Swap UCITS ETF: The Fund’s ability to track the benchmark’s performance is reliant on the counterparties to continuously deliver the performance of the benchmark in line with the swap agreements and would also be affected by any spread between the pricing of the swaps and the pricing of the benchmark. The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss. The value of equities and equity-related securities can be affected by a number of factors including the activities and results of the issuer and general and regional economic and market conditions. This may result in fluctuations in the value of the Fund. The Fund might purchase securities that are not contained in the reference index and will enter into swap agreements to exchange the performance of those securities for the performance of the reference index. The Fund is invested in a particular geographical region, which might result in greater fluctuations in the value of the Fund than for a fund with a broader geographical investment mandate.

    Important information

    Data as at 31 October 2025 unless otherwise stated.

    By accepting this material, you consent to communicate with us in English, unless you inform us otherwise. This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
    Views and opinions are based on current market conditions and are subject to change. For information on our funds and the relevant risks, refer to the Key Information Documents/Key Investor Information Documents (local languages) and Prospectus (English, French, German), and the financial reports, available from www.invesco.eu. A summary of investor rights is available in English from www.invesco.com/ie-manco/en/home.html. The management company may terminate marketing arrangements.

    UCITS ETF’s units / shares purchased on the secondary market cannot usually be sold directly back to UCITS ETF. Investors must buy and sell units / shares on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units / shares and may receive less than the current net asset value when selling them. For the full objectives and investment policy please consult the current prospectus.

    The "S&P 500 Equal Weight Index" is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”), and has been licensed for use by Invesco. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Invesco. The Invesco S&P 500 Equal Weight UCITS ETF and the Invesco S&P 500 Equal Weight Swap UCITS ETF are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the "S&P 500 Equal Weight Index".

    Authorised and regulated by the Financial Conduct Authority. The fund is authorised overseas, not in the UK. The UK Financial Ombudsman Service is unlikely to be able to consider complaints about this fund, its management company, or its depositary. Any losses related to the management company or depositary are unlikely to be covered by the UK Financial Services Compensation Scheme.  

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