Equal Weight ETFs: Are They Finally Ready to Outperform?

What makes equal weight ETFs different?

While traditional ETFs invest morein large companies and less in small ones, equal weight ETFs do the opposite—they treat every company equally.

This approach can:

• Reduce concentration risk (too much exposure to a few     stocks)
• Give smaller, faster-growing companies more influence
• Avoid overloading on overvalued mega-caps

In theory, that sounds like a smartlong-term strategy.

But in practice? The results have been mixed.

When equal weighting didn’t work

Let’s take the ASX 200 index as an example. The top four Aussie banks—CBA, NAB, ANZ and Westpac—make upover 24% of the index by market cap.

An equal weight ETF would significantlyreduce exposure to those banks. But in recent years, CBA’s outperformancehas been a key driver of index gains. Traditional ETFs that kept buying CBA—despite analysts calling it overvalued—ended up delivering strong returns.

In that case, equal weighting meant missing out.

The US example: Tech makes equal weight look foolish (for now)

In the US, the Betashares S&P 500 Equal Weight ETF (ASX: QUS) has underperformed its benchmark by anaverage of 3.5% annually over the past five years.

Why? Mega-cap tech.

Companies like:

• Apple (AAPL)
• Microsoft (MSFT)
• Nvidia (NVDA)
• Alphabet (GOOGL)
• Meta Platforms (META)

These giants have soared—and traditional ETFs have benefitted from their dominance. But equal weight ETFs kept trimming their exposure to those winners, and reallocating to smaller companies thatdidn’t keep up.

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So… what’s the point of equal weighting?

Despite recent underperformance, equalweight fans argue that:

• The tech bubble could burst or slow
• Market dominance rotates over time
• Equal weighting outperforms during broad market rallies,     or when small-caps surge

In other words: it’s a long game.

When the market eventually turns away frombig tech and favours value or mid-cap growth, equal weight ETFs could finallyshine.

Alternatives: Factor-based or “smartbeta” ETFs

Other ETF strategies have emerged that blendpassive and active investing. These include:

• Quality filters: Choosing companies     with strong balance sheets and earnings stability
• Moat strategies: Focusing on firms     with sustainable competitive advantages

These ETFs tend to charge slightly higherfees—but many have outperformed both traditional and equal weight ETFsin recent years.

Final thoughts: Is now the time forequal weight?

Equal weight ETFs won’t always win,especially in a market dominated by a few massive stocks. But over time, thediversification and lower concentration risk may deliver value—especiallyduring periods of market rotation or small-cap resurgence.

If you're building a long-term portfolioand want to reduce reliance on mega-caps, consider adding a smallallocation to an equal weight ETF like QUS.

But remember: like all strategies, equalweighting is a tool—not a guarantee. And the key to long-term success stilllies in staying consistent, diversified, and focused on your goals.

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