What Are Equal-Weight Index Funds?

By Catherine Brock – Updated Jun 11, 2025 at 3:42 AM EST

Key Points

Equal-weight funds offer similar long-term returns as cap-weighted but higher volatility and expense ratios.
Equal-weight strategy avoids over-concentration in large cap stocks, reducing bias toward dominant sectors.
Recent performance shows cap-weighted funds outperform when large tech companies lead market growth.

Equal-weight funds have underperformed in recent years, but there are some good reasons to consider them today. Let's dive into what equal weighting means and the effects this strategy can have on a fund's performance.

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Person sitting at table and calculating finances. — Image source: Getty Images.

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An equal-weight S&P 500 portfolio holds the same percentages of all S&P 500 constituents. In other words, the fund's position in Microsoft (MSFT -2.77%) or Apple (AAPL +0.04%) has roughly the same value as its position in, say, Ulta Beauty (ULTA -0.22%) or Monster Beverage (MNST -1.30%).

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Capitalization-Weighted Index Funds

Investment funds that prioritize stocks based on their market value with larger companies having a greater impact on the fund's performance.

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Table data source: Invesco.com, Direxion.com.

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Table data source: Invesco.com.

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As you can see, equal-weighting has lagged cap-weighting throughout the last decade. In the last three years, the gap between the two strategies has widened. This isn't surprising, given the outsized gains from mega-cap tech stocks since 2021. Microsoft, Apple, and Nvidia (NVDA -0.33%) have eclipsed $3 trillion in market cap and are continuing to climb in the artificial intelligence (AI) investing race.

The question is whether they can continue growing faster than small and mid-caps. Historically speaking, big companies haven't always been the drivers of market growth.

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According to SSGA, the S&P 500 Equal-Weight index outperformed cap-weighted returns in 10 of the 20 years between 2003 and 2023. However, cumulative returns for the 20-year period are about the same across the two indexes.

Whether you choose an equal or cap-weighting strategy depends on which risks you'd rather avoid. If over-concentration in the largest companies and most dominant sectors is a concern, equal weighting may suit you. Know that with that choice, you also accept a greater reliance on smaller companies, potentially higher volatility, and contrarian trading activity.

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About the Author

Catherine grew up in Southern California wearing a lot of black and trying to perfect the art of sarcasm. Prior to joining The Fool as a contract writer, Catherine was climbing the corporate ladder in marketing roles and dabbling in too many side hustles. When she's not writing, she can be found riding a horse in the country or shopping online for clothes.

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@catherinejbrock

Catherine Brock has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, Monster Beverage, Nvidia, and Ulta Beauty. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.