Equal-Weight S&P 500 Strategy Underperforms Cap-Weighted Index

The equal-weight S&P 500 investment strategy has consistently underperformed the standard market-cap weighted index throughout 2026, extending a trend that began in 2015. This divergence is driven by extreme market concentration, with a small group of AI-related technology stocks generating the majority of the index returns.

DataTrek Research reports that the performance gap between the two index versions is the largest in over 20 years, noting that equal weight has consistently underperformed over almost any given one-year holding period since mid-2023. Additionally, Goldman Sachs Private Wealth Management found that market breadth has fallen to its lowest level since the dotcom bubble.

Financial experts advise against relying solely on one approach. Todd Rosenbluth suggests that investors combine cap-weighted and equal-weight ETFs or diversify into mid-cap funds to avoid putting too many eggs in one basket. Todd Sohn recommends surrounding portfolio cores with low-correlation alternatives and real assets, such as energy and natural resources, alongside high-quality short-duration fixed income to mitigate technology sector volatility.