Equal-sector weighting outperforms equal-stock for S&P 500

SS&C ALPS Advisors published a commentary arguing that equal-sector weighting delivers better diversification for S&P 500 exposure than equal-stock approaches. The firm says equal-stock weighting assigns the same allocation to every company regardless of size or quality, which can shift capital away from large, profitable firms toward smaller, higher-risk companies.

The report states equal-stock weighting can produce unintended tilts to smaller companies, deeper value exposure and higher-volatility names. The commentary uses the phrase that a portfolio can end up owning “the ‘thorns’ in the same proportion as the ‘roses.'”

Equal-sector weighting, as implemented in the ALPS Equal Sector Weight ETF (EQL), spreads exposure evenly across all 11 market sectors and manages risk at the sector level. EQL tracks the VettaFi Modelist Equal Weight Sector 500 Index, which equally weights the 11 sectors and ranks stocks within each sector by float-adjusted market capitalization so larger available-share companies carry more weight inside their sector.

The commentary includes a growth-of-$100 comparison covering April 2016 through April 2026 that shows the NYSE Equal Sector Weight Index outpacing the S&P 500 Equal Weight Index over that period. The report presents that comparison to illustrate differences in long-term performance between sector-level and stock-level equal weighting.

EQL held about $733 million in assets under management and had a net expense ratio of 0.27%, according to ETF Database. The report notes VettaFi receives an index licensing fee for the benchmark and is not the issuer, sponsor, endorser or seller of EQL and has no obligations related to the fund’s issuance or marketing.

The commentary concludes that equal-stock and equal-sector approaches address different problems and are not interchangeable.