A lot changed in stock market in just a few months. The single biggest risk did not

Key points

• Equal-weight S&P 500 funds have lagged the standard index for almost four years.
• Tech stocks make up about 40% of the S&P 500 but only 16% of the equal-weight version.
• Experts suggest combining equal-weight and cap-weighted ETFs rather than choosing one.

The equal-weight version of the S&P 500 has continued to underperform the standard market-cap-weighted index in 2026, according to a CNBC report. September was the most brutal month for equal weight, capping its longest multi-week losing streak since 2022, with the index falling more than 4%. Investors using equal weight are not losing money, but they have been making less than those who stuck with the standard S&P 500.

Market breadth has fallen to its lowest level since the dotcom bubble, according to a recent Goldman Sachs analysis. A basket of 42 AI stocks generated 67% of the S&P 500's price return since the start of 2024, according to The Kobeissi Letter. DataTrek Research noted that the equal-weight S&P 500 has consistently lagged the market-cap-weighted version over any given 1-year holding period for almost four years.

What experts recommend

Todd Rosenbluth, head of research & editorial at TMX VettaFi, said the answer is not to just own an equally weighted ETF. Instead, he recommends combining cap-weighted ETFs and equal-weight options within a portfolio. On the equal-weight side, investors can use an ETF like Invesco's RSP or adopt the approach at the sector level with an ETF like the ALPS Equal Weight Sector ETF, EQL.

Rosenbluth said the recent underperformance of equal weight is no reason to throw out the concept. He said the recent strength in cap-weighted ETFs is a sign of investors putting too few eggs in one basket. He added that long-term investors who worry the market is driven by a few stocks have alternatives to consider.

The answer is mostly don't just own an equally weighted ETF

— Todd Rosenbluth

Other diversification options

Todd Sohn, chief ETF strategist at Baird Strategas, said investors need to have their eyes wide open in a market where Nvidia is larger than the entire consumer discretionary sector of the S&P 500. He said the message is about surrounding the core of a portfolio with low Tech, low correlation alternatives. He suggested considering actively managed SMID-cap stocks or splitting an allocation between passive and active SMID.

Sohn also said diversifying away from S&P 500 risk can mean thinking about sectors such as natural resources and energy. He recommends sticking with high-quality, short-duration investment grade fixed income. He said equal-weight S&P works at times but is not equal to the task of surrounding the AI-heavy core of portfolios now.