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Paper – 10 Years Later: Where in the World is Equal Weight Indexing Now?

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10 Years Later: Where in the World is Equal Weight Indexing Now?, Liyu Zeng – Standard & Poor’s; Frank Luo, Standard & Poor’s. April 20, 2013. Via SSRN

  • “Often the most powerful investment ideas are simple. The S&P 500 EWI 10 years ago pioneered the simple concept of equal weighted indexing. It has now expanded in the U.S. into the S&P 100, a MegaCap index, S&P MidCap 400® and S&P SmallCap 600®. The equal weighting idea has also been applied to international equities, as well as in other asset classes such as fixed income indices and commodity indices. It has become one of the most popular alternatively-weighted ideas. While the headline cause of asset flows has been outperformance over market-cap indices, sophisticated investors have realized that equal weighting creates a different set of risk factor exposures than market cap weighting that seem to have worked over the long-term as noted in the paper. Furthermore, the concept randomizes factor mispricings in the market, and it can serve as a performance benchmark for alternative-weighted indices.”
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