What is an equal weight ETF?

With an equal-weight ETF, all the slices are the same size, regardless of the size of the company or sector. There are exchange-traded funds (ETFs) that track each of the two indexes, but even though they are basing their funds on the same companies, they can behave very differently. In Jan. 2003, the S&P 500 Equal Weight Index (EWI) was created.

What is a sector weight in EWI?

For EWI, the sector weight is really a direct function of the number of companies in the sector. For example, if a sector contains 45 stocks, then the weight of the sector should theoretically be (45 / 500) x 100 = 9%. The table below is a calculation of a hypothetical five-stock index, comparing a market weight versus an equal weight calculation.

What is the difference between an equal-weight portfolio and a market cap?

An equal-weight portfolio invests capital equally into all of the constituents in that portfolio while a market cap weight will invest more capital into the constituents with a higher market cap. The latter favors larger companies, and the performance of the portfolio is influenced more by the performance of those larger companies.