Equal weighted indices
Equal weighted indices (EWI) utilizes an alternative index strategy that weights securities equally as opposed to weighting them according to market capitalization weights. This methodology places EWI in the Passive security selection and Fixed Weight segment of the Index Strategy Box (see Fig.1).
S&P introduced equal weight indexing on January 8, 2003 with the creation of the S&P 500 Equal Weighted Index. S&P subsequently created equal weighted indices for sectors of the market.  As of December 31, 2008, 1.372 billion dollars was indexed to the S&P 500 EWI index. 
|S&P Equal Weight Index (EWI)||SPXEW||.SPXEW|
|S&P EWI Consumer Discretionary||S25||.SPXEW25|
|S&P EWI Consumer Staples||S30||.SPXEW30|
|S&P EWI Energy||S10||.SPXEW10|
|S&P EWI Financials||S40||.SPXEW40|
|S&P EWI Health Care||S35||.SPXEW35|
|S&P EWI Industrials||S20||.SPXEW20|
|S&P EWI Information Technology||S45||.SPXEW45|
|S&P EWI Materials||S15||.SPXEW15|
|S&P EWI Telecommunication Services||S50||.SPXEW50|
|S&P EWI Utilities||S55||.SPXEW55|
In September 2010, S&P created an equal weighted commodity index . S&P has also created equal weighted versions of the S&P MidCap 400 and S&P SmallCap 600 indices.
In weighting securities, an equal weighted index will usually divide a security by the total number of securities in the index (1/n). Thus each stock in the popular S&P EWI comprises 1/500 or 0.20% of the index. In the S&P EWI, stocks 500 to approximately 125 (in market cap size) are moderately "overweighted" and stocks approximately 125 to 1 are progressively "underweighted." The effect of equal weighting is to give smaller companies in a stock index more influence over index performance than would occur in a capitalization weighted index. There is also a tendency for equal weighting to give higher weighting to value stocks. Equal weighted indexes are also consistently less concentrated than market capitalization indexes. 
The sector weightings in a broad market equal weighted stock index are not determined by the fluctuating size of the companies in the sector, but by the number of companies in the sector. The result is that the EWI has a more stable sector allocation in comparison to a corresponding market capitalization index. There is also a tendency for an EWI to over weigh sectors comprised of smaller stocks and under weigh sectors comprised of larger stocks 
Rebalancing and turnover
In order for an equal weighted index to maintain its equal weights it must be periodically rebalanced back to its target weightings. In the interim between rebalancing, security values will fluctuate away from equal weighting. The usual EWI rebalancing methodology dictates quarterly rebalancing of the index. These quarterly rebalancings result in an EWI having higher turnover rates in comparison with benchmark indices. During the 2004-2009 period, the S&P EWI 500 index had turnover averaging 28.1%. This compares to turnover rates of 2.8% for the S&P 500 index; 13.4% for the S&P MidCap 400 Index; and 13.1% for the S&P SmallCap 600 Index. 
The investment performance of an equal weight stock index will be affected by its greater holdings of smaller companies, any value tilt the weighting brings to the index, and the effects of quarterly rebalancing. S&P has back-tested results for the S&P EW 500 index going back to 1990 (the index was created in January, 2003.) Over the entire (1990 - 2009) period, the compounded annual return of equal weight 500 index outperformed the cap weight 500 index by +1.8%, but with considerable variance over market cycles. S&P reports that the EWI would have outperformed the S&P 500 in the early nineties; underperformed during the 1994 - 1999 period dominated by technology growth stocks; and outperformed over the 2000 - 2009 period. The S&P EW index tends to have higher volatility than the S&P 500. Over the 2002 - 2007 period the annualized standard deviation was 10.97% for the S&P EWI versus 8.61% for the S&P 500.  Correlation of the S&P EW Index to the S&P 500 Index ranged from 84% to 98% (1990 - 2009), with the lowest correlations occurring during the 2000 - 2002 bear market. 
The following table provides annual returns for the S&P EWI.
|Year||S&P EW 500 TR||S&P 500 TR|
Wilshire also provides an EWI for the Wilshire 5000 index (there is no index fund tracking this index, although Guggenheim Funds, nee Claymore, has filed with the SEC for a Wilshire EW 5000 ETF).  The Wilshire EW 5000 index would provide higher weights to mid cap, small cap, and micro cap stocks in comparison to the cap weighted Wilshire 5000 index. The return history (1971 - 2012) for this index is included in the appendix.
Guggenheim  provides equal weighted ETFs based on the S&P 500, 400, and 600 equal weight indices, as well as nine ETFs based on S&P equal weight indices. In addition, Guggenheim provides three ETFs based on Russell equal weighted indices (Russell 1000, Russell mid-cap, and Russell 2000) and two ETFs based on MSCI equal weighted international indices (EAFE and Emerging Markets).
- MSCI Equal Weighted Indices
- S&P 500 Equal Weight Index
- S&P MidCap 400 Equal Weight Index
- S&P SmallCap 600 Equal Weight Index
Equal weight index methodology
- MSCI Equal Weighted Indices Methodology
- S&P U.S. Equity-Alternative Weighting, select methodology
- Russell Equal Weight Indexes, select methodology
- Equal Weight Indexing Seven Years Later Srikant Dash and Keith Loggie, S&P (July, 2010)
- Update on MSCI Equal Weighted Indices
- S&P 500 ETFs: Market Weight Vs. Equal Weight Investopedia
- Rich White, Market Cap, Equal Weight And Fundamental Indexing, Investopedia
Data source: Wilshire Returns Calculator
- Indexing in the 21st Century: Portfolio Solutions Inc.
- Equal Weight Indexing Seven Years Later Srikant Dash and Keith Loggie, S&P (July, 2010)]
- S&P Annual Survey of S&P Indexed Assets (2009)
- S&P Methodology
- S&P 500 ETFs: Market Weight Vs. Equal Weight - Investopedia
- Claymore Filing: Equal-Weighting The Wilshire 5000?