Is it the year of the equal-weighted S&P 500 Index?

Fisher Funds chief investment officer Ashley Gardyne says the European, Japanese and emerging markets all out-performed the US S&P 500 Index in 2025, even though the latter still managed 17% growth.

“A lot of that was driven by AI owners. Without them, it would’ve been quite a bit weaker,” Gardyne says.

The problem with the headline US index is that about 40% is tech firms with about seven individual stocks dominating, meaning investors in funds tracking the benchmark index are no longer getting the diversified exposure to US stocks that such funds used to deliver.

While the exposure to the AI wave has been working well, “it gets to the point where that concentration becomes a risk,” Gardyne says.

He also warns that the US market “does look expensive. It’s more expensive than any other market around the world.”

But then investors do tend to choose markets that have done very well.

He suggests if investors do want better exposure to the rest of the world, then an index tracking the MSCI World Index would provide that, even though US stocks account for about 60% of that index and many of them are tech stocks, so the concentration risk remains.

“Following an index can work a lot of the time and in a lot of cycles, but sometimes you might have to look at constructing your own portfolio that doesn’t have such exposure to a lot of those areas.”

Another factor those targeting US equities need to consider is that about 50% of the value of the US market is accounted for by passive index funds and that they account for about 80% of the funds flows.

That means if a stock within the index being followed grows, passive index funds have to take on more exposure and the reverse happens when a stock falls in value, Gardyne says.

“It becomes a little self-reinforcing,” he says, noting that crises such as the covid pandemic and US President Trump’s “Liberation Day” tariffs created a great deal of volatility sparked by passive fund selling.

Trump’s tariffs have just been overturned by the US Supreme Court, although the president is claiming other powers to impose 15% universal tariffs.
The FT says that the equal-weighted S&P 500 has underperformed the equal-weighted index in the past three years but that “historically, it has been a coin flip; the equal-weighted index has underperformed in 18 out of the past 36 years.”

Gardyne suggests the equal-weighted index might be a better bet this year though, because it would give investors exposure to a lot of the smaller underperforming stocks that could be in for a come-back.

‘It’s a way to avoid the concentration you get with cap-weighted indices. If you were building a portfolio from scratch, you wouldn’t be saying let’s put 40% in tech.”

The FT quotes Sam Stovall at CFRA who argues that the equal-weighted S&P 500 index is currently trading at about a 20% discount to the benchmark index.