Financial Industry Insights from Advisors Asset Management


AAM Viewpoints — Narrow Markets and the Opportunity in Equally Weighted Strategies

Equity market concentration and narrow leadership is at record levels.

  • The five largest stocks in the S&P 500 account for 24% of the index, a record high dating back to 1972.

  • For context, the same five stocks are now each larger than the entire Real Estate Sector (Chart 1.)
  • Year to date, 24.5% of stocks have outperformed the index. If this holds through the end of the year, it would be the lowest percent outperforming the index on record. (Chart 2)

The S&P 500 Equal Weight Index (EWI) just turned 20 years old and research from S&P Dow Jones Indices provides some timely insights into the potential benefits of equally weighted strategies.

  • First, the S&P 500 Equal Weight Index has outperformed the S&P 500 Index by an 1.51% annually since inception (Jan. 2003 – Dec. 2022).

  • Recently, elevated sector dispersion (concentration) has made sector allocations more important in explaining Equal Weight’s relative returns. S&P 500 Equal Weight Index’s greater exposure to Energy and lower exposure to Communication Services, Info Tech, and Consumer Discretionary accounted for around two-thirds of its 7% outperformance in 2022. These exposures also helped to explain the index’s underperformance in the 1st quarter of 2023.

  • S&P Dow Jones Indices notes1 while sector dispersion can help explain relative returns, it’s important not to overlook the impact of equal weighting within each sector. Equally weighting within each sector has mattered more than just equally weighting the sectors themselves. In fact, having more exposure to the smaller names within each sector was the most important driver of the S&P 500 Equal Weight Index’s relative returns.

So What?

  • Sector concentration has tended to mean-revert historically. The current relatively high level of concentration within sectors suggests a potential opportunity. One would expect equally weighted sectors to outperform market-cap weighted sectors when concentration falls or the equity market returns broaden out, all else equal. (Chart 3)

  • To the extent that current concentration levels mean-revert or decline market participants may wish to consider the potential benefits of equally weighted strategies within their allocations.

Chart 1:S&P 500 percentage weightSource: Strategas; REIT = Real Estate Investment Trust | Past performance is not indicative of future results.

Chart 2:

SPX on pace for fewest stocks beating index on record | percentage of S&P 500 stocks that outperformed the S&P 500 over the calendar yearPast performance is not indicative of future results.

Chart 3:

S%P 500 equal weight information technology index typically outperformed as concentration declinedPast performance is not indicative of future results.


CRN: 2023-0602-10927 R

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit


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