A recent NY Times article highlighted that both the S&P 500 indices, market weighted and equal weighted, performed almost equally in the year 2021. In fact equally weighted S&P 500 index ended up slightly higher with 27.48% return than the market weighted S&P 500 (26.89% return).
Performance of Market Cap weighted S&P 500 and equally weighted S&P 500 in 2021
Here is a look at the performance of Market Cap weighted S&P 500 and equally weighted S&P 500 using SPY and RPS funds.
Is it really surprising to see equal performance of Market Cap weighted S&P 500 and equally weighted S&P 500?
As always, the answer is it depends. If you thinkS&P 500 is mainly carried by the top companies, the similar performance of equally weighted and market cap weighted S&P 500 shows that the market cap based weight does not really matter.
If you wonder how could this be. As Barry Ritholtz of https://ritholtz.com/ nicely explains
The general answer is that the current market is healthy, with broad participation by lots of companies. The combination of Fiscal and Monetary stimulus, near full employment, and robust retail sales has impacted lots of companies in terms of revenues and profits.
Is the year 2021 any special? To answer it, let us look at the annual returns of Market Cap weighted S&P 500 and equally weighted S&P 500 since 2013.
An interesting twist could be that given the top companies don’t really give out dividend, investors could potentially be getting more returns from equally weighted S&P 500 than market value weighted S&P 500, when the performance is similar.
You might also be interested in the performance of S&P 500, Dow-Jones Industrial Average and NASDAQ composite in the year 2021.
[…] 500 index also beat Dow Jones Industrial Average index and NASDAQ composite index. In addition, equal weighted S&P 500 index also performed equal to market cap weighted S&P 500 in […]