Equal weight investing refers to a strategy that invests equal amounts into each stock in an index, rather than weighting stocks based on their market capitalization. This can provide diversification benefits compared to market cap weighted indexes like the S&P 500. Fidelity offers some equal weight index mutual funds and ETFs that track the S&P 500 Equal Weight index.
What is equal weight investing
Equal weight investing aims to weight each stock equally within a portfolio, regardless of the company’s size or market capitalization. This differs from traditional market cap weighted indexes like the S&P 500, where larger companies make up a greater portion of the index.
Fidelity’s equal weight S&P 500 funds
Fidelity offers some mutual funds and ETFs that track the S&P 500 Equal Weight Index rather than the regular market cap weighted S&P 500 Index. These funds can provide diversification benefits but may have slightly higher expense ratios.
Potential benefits of equal weighting
Equal weighting can provide more diversification and reduce concentration risk compared to market cap weighted indexes that are more top heavy. It also results in automatically rebalancing into out of favor stocks.
Drawbacks of equal weighted funds
The main drawback of equal weight funds is that they may have higher expense ratios than basic index funds. They also may underperform the market cap weighted benchmark during strong bull markets when mega-cap stocks outperform.
Equal weight S&P 500 investing aims to provide diversification benefits versus basic market cap weighted S&P 500 funds. Fidelity offers some mutual funds and ETFs based on the S&P 500 Equal Weight index that individual investors can consider.