What are the potential risk/return benefits of the S&P 500 Equal Weight Index? S&P DJI’s Hamish Preston and Tim Edwards explore what’s driving the mega-cap trend, multi-decade highs in S&P 500 concentration, and potential applications for the S&P 500 EWI.
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2020 witnessed outperformance from some of the largest S&P 500® companies as investors expected these firms to be better placed to navigate the COVID-19 environment. Exhibit 1 shows that this outperformance led to the largest names accounting for an unusually high proportion of the U.S. large-cap equity benchmark, and therefore having a bigger impact on…
2020 was a year of two reversals for the market. First, equities recovered from the depths of March to finish the year strongly, and second, smaller-cap and value stocks staged a roaring comeback in the final quarter. We can better understand the second reversal by analyzing the market’s distribution of returns and the performance of…
When we think about reversals in the market, we likely think of brief turnarounds in performance. But what if it’s more? What makes a reversal turn into a recovery is a full-fledged long-term improvement in performance. We can apply this logic to Equal Weight’s recent experience. After consistent underperformance since April 2017, the S&P 500®…
The S&P 500® rose by 10% in the 12 months ending on Oct. 31, 2020, trouncing the S&P 500 Equal Weight Index by 9.1%, as seen in Exhibit 1. While such outperformance is not unprecedented, it does remind us of previous market peaks (especially in December 1999), and raises questions about whether a reversal may…
Since its inception, the S&P 500® Equal Weight Index has outperformed the S&P 500 by 1.4% annually. Year-over-year performance margins, however, are anything but steady. Exhibit 1 shows that the S&P 500 Equal Weight Index and its cap-weight counterpart have gone through many performance cycles over the past 30 years. Mega caps experienced record performance…
Our SPIVA® reports have shown, year after year, that market-cap weighted benchmarks are, to put it kindly, hard to beat. However, in 2019 a range of circumstances made “hard to beat” become nigh-on impossible for the S&P 500®. In general, there are three common ways by which an active portfolio can outperform its benchmark: over…
February has been a great month for factor index performance: of the 17 S&P 500®-based factor indices reported in our quarterly factor dashboard, 11 have outperformed the “vanilla” S&P 500 so far. Our indices focused on quality and shareholder return are having particularly strong months, with the S&P 500 Dividend Aristocrats®, the S&P 500 Buyback…
Equal-weight indices have a small-cap tilt. Therefore, one might naturally assume that the volatility of equal-weight indices is higher than that of their cap-weighted counterparts. Surprisingly, this is not always the case, and we can understand why using the lens of dispersion and correlation. Exhibit 1 shows that the volatility of the S&P 500® Equal…
At last Friday’s close, S&P Dow Jones assigned a number of technology and consumer discretionary names into a new “Communication Services” sector classification. Relative to the old Telecommunication Services definitions, the sector has grown from 3 to 22 companies (not counting dual share listings) and is less concentrated in absolute terms. However, Communications Services remains…
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