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S&P Fund Tops the S&P 500

During the past decade, the equal-weight benchmark has done particularly well in bull markets. At such times, investors have shown a greater appetite for riskier small stocks and less desire to take shelter in the biggest names. When stocks rebounded in 2009, Guggenheim returned 44.6%, compared to 26.4% for SPDR S&P 500.

While they may deliver greater returns, smaller stocks can be more volatile. That has sometimes resulted in poorer performance for the equal-weight fund. But most often, equal-weight portfolios have held their own in down months. During the 20 years ended in 2012, the equal-weight benchmark returned 10.2% annually, compared to 8.2% for the conventional S&P 500.


The equal-weight benchmark does trail during the times when mega caps lead the markets. That happened in the great technology bull market of the 1990s.

For the six consecutive years ended in 1999, the S&P 500 outdid the equal-weight index. Then beginning in 2000, the equal-weight index outperformed for six consecutive years.

The mega-cap periods of outperformance are relatively rare, says Craig Lazzara, senior director of S&P Dow Jones Indices. "It is typically the case that the largest stocks are not the market leaders," says Lazzara.

While the long-term odds may favor equal-weight funds, some analysts argue that the mega caps are due for a period of outperformance. Todd Rosenbluth, director of ETF research for S&P Capital IQ, argues that the Guggenheim fund can be a solid core holding. But he prefers SPDR S&P 500, because of its big stakes in the blue chips, including Chevron (CVX) General Electric (GE), and Microsoft. "The mega-cap stocks are attractively valued," he says.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
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