Relative Value’s Comeback Seen in the S&P 500 Equal-Weight Index’s Performance

• The S&P 500 equal-weight index has been outperforming the traditional cap-weighted index over the past two years
• As market concentration subsides, there’s still the opportunity to find the right stocks at favorable prices
• Relative value stocks, those with lower valuations compared to the biggest of the big U.S. tech equities, managed to hold up better in 2022

Rising interest rates and a flee from so-called ‘long-duration’ technology-related equities have turned once-out-of-favor sectors like financials, industrials, and energy back into the spotlight. January’s chart of the month is a play on that narrative but in an unusual way.

Since the S&P 500 was so lopsided to mega-cap tech in the last few years, the equal weight version of the index, which sets each holding to approximately just a 0.20% weight, has greatly beaten the traditional index which weights each component by its size based on market cap. As a result, the top 5 largest stocks reached nearly 25% of the SPX during the mega-cap heydays of 2020 and 2021. Jump ahead to early 2023, and those same stocks are less than 18% of the S&P 500. In fact, Warren Buffett’s Berkshire Hathaway snatched the 5^th spot from Tesla recently.

Source: S&P Dow Jones Indices
https://www.indexologyblog.com/2023/01/09/celebrating-20-years-of-the-sp-500-equal-weight-index/