S&P 500 Equal Weight: Why Now

Prior to 2023, the S&P 500 Equal Weight Index (Equal Weight) had outperformed the S&P 500 Index by an average of 1.48% annually since its launch¹. However, 2023 and 2024 were the two largest underperforming calendar years since Equal Weight’s launch in 2003 as the performance of the Magnificent 7 overshadowed the rest of the S&P 500. This resulted in the S&P 500 reaching a record level of concentration, an unprecedented valuation and a shift towards growth. While this season of underperformance was notable, during Q3 2024, market breadth expanded, which benefited Equal Weight.  

During the second half of 2024, investors have anticipated a widening of performance that was boosted by Trump’s election. Since July 2024 Equal Weight experienced $15B in net flows or 7.4% of the flows to S&P 500 ETFs, 2.2x its market share.

1. High Concentration: Since 2023, narrow market leadership led to historically high concentration in the cap-weighted S&P 500. During this time Magnificent 7 names contributed to 55% of the S&P 500’s return. This led to the top ten names accounting for 38% of the S&P 500² – the largest weight since the late 1970’s.

2. Stretched Valuations: The Bloomberg Magnificent 7 index’s P/E ratio was 39% higher than the S&P 500 Index at the end of January – 38.6 to 27.7³. The high valuation of mega-cap growth names has pushed the P/E ratio of the S&P 500 to a 28% premium to the S&P 500 Equal Weight Index (Equal Weight). Goldman Sachs believes the S&P 500’s stretched valuations & concentration could be a headwind to S&P 500 Index’s return vs Equal Weight’s over the next decade⁴.

3. Mean Reversion of Excess Returns: Equal Weight is still recovering from its worst 12-month relative drawdown in the past 20 years. During the last half of 2024 and into January, market breadth normalized and the gap between the S&P 500 and Equal Weight narrowed. The S&P 500 outperformed slightly returning 11.46%, while Equal Weight returned 11.32%. DeepSeek may be a catalyst for expanded market breadth as the focus shifts from AI infrastructure to implementing AI across the economy. Historically, performance mean reverts (cycles) over time and this current environment may be a potential opportunity to gain exposure to the rewarded size and value factors.

1: Bloomberg, S&P 500 Equal Weight Index was launched on 8 January 2003, from that date to the end of 2022 Equal Weight returned 11.10%, while the S&P 500 Index returned 9.62% In 2023 the magnificent 7 returned 107.01%, S&P 500 Index returned 26.29% and RSP returned 13.65% (at NAV).  
2: Source: Factset as of 31 January 2025. Mag7 nickname for MSFT, META, AMZN, AAPL, NVDA, GOOGL, TSLA.  
3: Bloomberg and FactSet as of 31 January 2025.  
4: Goldman Sachs Global Strategy Paper No. 71 Oct 18, 2024.

Past performance is not a guarantee of future results; current performance may be higher or lower than performance quoted. Investment returns and principal value will fluctuate and shares, when redeemed, may be worth more or less than their original cost. See invesco.com to find the most recent month-end performance numbers. Market returns are based on the midpoint of the bid/ask spread at 4 p.m. ET and do not represent the returns an investor would receive if shares were traded at other times. Fund performance reflects fee waivers, absent which performance data quoted would have been lower. As the result of a reorganization on April 6, 2018, the returns presented reflect performance of the Guggenheim predecessor fund. Invesco is not affiliated with Guggenheim. An investment cannot be made directly into an index. Index returns do not represent fund returns. 

RSP Standardized Performance 
There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Underlying Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.     
Investments focused in a particular industry or sector, are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.     
Stocks of medium-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.     
Shares are not individually redeemable and owners of the Shares may acquire those Shares from the Fund and tender those Shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 10,000, 20,000, 25,000, 50,000, 80,000, 100,000 or 150,000 Shares.     
All data as of January 31, 2025, unless otherwise stated.     
All data provided by Invesco unless otherwise noted.     
The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.     
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.     
Before investing, investors should carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the fund(s), investors should ask their financial professional for a prospectus/summary prospectus or visit invesco.com/fundprospectus. 

Invesco Distributors, Inc.