Equal-Weight Index Funds: A Comprehensive Guide

An equal-weight index fund provides you with an alternative form of investment. An equal-weight index fund is set up with different proportions. Here are the basics of the equal-weight index fund and how they work.

Equal-Weight Index Fund

With the equal-weight index fund, the same importance is given to every stock in the index. A traditional index fund is weighted towards the larger companies in the index. They place less importance on the smaller companies in the index and therefore do not buy as many stocks from these companies. 

In an equal-weight scenario, the size of the company does not matter. They look at the smallest company in the index as being equally important to the index as the largest company is. This can change the way that the fund performs and create more volatility in the fund overall.

For example, with this type of fund, you might buy the exact same amount of shares of Wal-Mart as you do for AK Steel Holdings in the S&P 500. This creates a scenario where the most stable companies and traditionally safer investments do not make up the bulk of the portfolio overall.