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Consider this Alternative Way to Invest in the S&P 500

  • Writer: Thomas Van Spankeren
    Thomas Van Spankeren
  • Mar 3
  • 3 min read

  • There are multiple ways to own the S&P 500 index including the popular Market Capitalization Weighted (“Market-Cap”) S&P 500 index and the lesser known Equal Weighted (“Equal-Weight”) S&P 500 index.


  • The Equal-Weighted S&P 500 index has begun to outperform the Market-Cap S&P 500 in 2026.


  • The Equal-Weighted S&P 500 index is an effective way to bolster diversification and take advantage of broader market opportunities.


Background: Market-Cap vs. Equal-Weight S&P 500 Index


Introduction

The S&P 500 is the most well-known equity index comprising of the largest 500 corporations in the United States. The most common composition of the S&P 500 is the Market-Cap S&P 500 index which weights each constituent relative to the stock’s market capitalization. Alternatively, the Equal-Weight S&P 500 index assigns an equal weight to each of the 500 constituents.

 

To visualize the difference between the two indices, here are the top 10 constituents of the Market-Cap S&P 500 index and those same companies’ weightings in the Equal-Weight S&P 500 index.


Top 10 Constituents in the Market-Cap S&P 500

Performance

The Equal-Weight S&P 500 index is off to one of the best starts to 2026 versus the Market-Weight S&P 500 index in decades [1].


S&P 500: Equal-Weight Variant Has its Biggest Lead Over Cap-Weighted Index in Decades

Despite the recent outperformance of the Equal-Weight S&P 500 index, the long-term relative performance gap between the Equal-Weight and the Market-Cap S&P 500 index is at the largest in decades.

 

Mean reversion to historical levels would imply considerable relative outperformance for the Equal-Weight S&P 500 index.



Rolling Three-Year Relative Performance [2]


Rolling Three-Year Relative Performance of Market-Cap vs. Equal-Weight S&P 500 Indices

Long-term outperformance of the Equal-Weight S&P 500 index is primarily driven by greater exposure to smaller companies versus larger companies. The Market-Cap S&P 500 index is overweight the largest companies and is underweight the smaller companies. Financial studies have showed that smaller sized companies outperform larger sized companies over multiple market cycles [3].


Benefits of Equal-Weight S&P 500 Index

We observe three main benefits of the Equal-Weight S&P 500 index at the current market juncture.

 

Disciplined Re-balancing

The Equal-Weight S&P 500 index re-balances on a quarterly basis by trimming the positions that have outperformed in the quarter and adding to the positions that have underperformed in the quarter. This mechanism reduces exposure to higher valued larger sized companies and bolsters exposure to cheaper smaller sized companies. Additionally, this disciplined process prevents concentration risk as holdings are re-weighted to the 0.2% target weighting.

 

Diversification Benefits

Exposure to the Equal-Weight S&P 500 index not only significantly reduces concentration risk but boosts exposure to a broader array of industries. The difference in industry exposure of the Market-Cap and the Equal-Weight S&P 500 indices is noteworthy.


S&P 500 Sector Industry Exposure

The Equal-Weight S&P 500 index increases exposure to cyclical industries such as industrial stocks while offering far more reasonable overall sector exposure as opposed to the technology heavy Market-Cap S&P 500 index.

 

Attractive Fundamentals and Valuations

The recent outperformance of the Market-Cap S&P 500 index has solely been driven by multiple expansion as earnings growth over the last ten years is virtually identical [4]. This puts the Market-Cap S&P 500 index at higher risk of multiple contraction.


Performance Drivers of S&P 500 vs. S&P 500 Equal-Weight

The valuation differential between the Equal-Weight S&P 500 index and the Market-Cap S&P 500 index favors the Equal-Weight S&P 500 index going forward.


Conclusion

Incorporating the Equal-Weight S&P 500 index in portfolios reduces exposure from Mega-Cap technology stocks and increases exposure to a potentially underweight set of stocks based on industry, size, and valuation.


Footnotes

[1] Chart of the Week: Year of the equal-weighted S&P 500? Financial Times, as of February 21st, 2026.


[2] The ‘Great Narrowing’: S&P 500 concentration. RBC Wealth Management, as of January 22, 2026.


[3] The most referenced study on smaller company outperformance is the Fama-French Three Factor model developed by Universify of Chicago professors Eugene Fama and Kenneth French.


[4] 2025 U.S. Value Review Letter. Lyrical Asset Management, as of January 28th, 2026.



Disclosure

RISE Investment Management, LLC ("RISE" or "RISE Investments") is an investment adviser registered under the Investment Advisers Act of 1940. Registration of an investment adviser does not imply any level of skill or training. This publication is solely for informational purposes and past performance is not indicative of future results. Any description of products, services, and performance results of RISE contained in this publication are not an offering or a solicitation of any kind. No advice may be rendered by RISE Investments unless a client service agreement is in place. Advisory services are only offered to clients or prospective clients where RISE Investments and its representatives are properly licensed or exempt from licensure. All of the information in this publication is believed to be accurate and correct as the date set forth. RISE does not have or accept responsibility or an obligation to update such information. Please note, this article is for education purposes and should not be treated as tax or legal advice. This article is not a substitute for legal or tax advice from your professional legal or tax advisor.


 
 
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