Equal-Weight S&P 500 vs. Cap-Weighted
A proxy for concentration risk
The ratio of equal-weight S&P 500 (RSP) to cap-weighted (SPY) measures whether the average stock is keeping pace with the mega-caps. When cap-weight significantly outperforms equal-weight, it signals dangerous concentration.
What history says
Editorial commentary written by ALAN analysts. Figures cited below are analyst-authored context — they are not derived from the chart above and may reflect different windows or sources.
When SPY outperforms RSP by >5% over 12 months, it means the largest stocks are driving all the returns. This was extreme in 2023-24 with the 'Magnificent 7.'
RSP has outperformed SPY over most rolling 10-year periods since inception. The equal-weight premium comes from systematic rebalancing (selling winners, buying losers) — a value tilt in disguise.
Equal-weight has slightly higher volatility (more small/mid-cap exposure) but has delivered a higher Sharpe ratio over long periods. Consider RSP as a core holding.
A long stretch of cap-weight outrunning equal-weight is a cue to measure how much of your recent gains came from a handful of index heavyweights — and to rebalance between your core fund and an equal-weight complement on a schedule rather than a hunch.