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S&P 500® Sectors: Equal-Weight and Cap-Weight Indices Discover how different weighting schemes impact index characteristics and performance.
BY Philip Murphy

Equal-weight (EW) indexing has been embraced by a growing segment of investors since the launch of the S&P 500 Equal Weight Index in 2003. The S&P 500 Equal Weight Sector Indices were introduced in 2006, and the S&P 500 Equal Weight Real Estate Index was launched in 2015. As with S&P DJI’s cap-weighted Global Industry Classification Standard (GICS®) benchmarks, our EW sector indices use GICS categories to determine the constituency of each index. EW sector constituents align with GICS sectors or sector combinations—except for real estate, which is currently a GICS industry group but is slated to attain sector status later in 2016.

In each of the EW sector indices, the index weight of each company is a function of the company count, because index weight equals 1/n (the number of companies in the index). Telecommunication services, at the low end of the scale, had only five companies in the S&P 500 at the end of 2015. In contrast, financials had the highest company count in the S&P 500, with 87. Four companies in the S&P 500 were represented by two equity issues each—Alphabet Inc. (Google’s parent company), Discovery Communications, News Corp., and Twenty-First Century Fox. The first is in the information technology sector and the latter three are in the consumer discretionary sector. As a result, consumer discretionary had 87 issues, tying with financials, but it had only 84 companies. Since EW indices are equally weighted by companies, not by issues, the weight of each company in the S&P 500 Equal Weight Financials Index is 1.15% (1/87) at rebalance, while that of each company in the S&P 500 Equal Weight Consumer Discretionary Index is 1.19% (1/84).

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