Not all funds that track the same index are created equal. For some, inequality is part of the design. Take the S&P 500 and S&P 500 SPDR E.T.F.
Apple is the S&P 500's largest constituent, up 4.7 percent in early January. News Corporation, the smallest member, accounted for less than 0.01 percent of the index.
This is because, like many other large indices, the S&P 500 is "capitalized weight," meaning that each company's value, or market capitalization, determines how much weight it has in the index. The idea is to get a true representation of the stock market by giving each share the appropriate relative value.
One alternative is to maintain approximately the same allocation to each company. An equally weighted version of the S&P 500, for example, will adjust its holdings on a regular basis to ensure that Apple, News Corporation and everything in between make up just 0.2 percent of the portfolio. Invesco S&P 500 Equal Weight E.T.F. does.
Like many things in investing, there are benefits to both methods. For some very long periods, weighted funds have beaten similar capitalization weighted funds, but in recent years the latter have outperformed.
"The Equal Weight Approach" involves "ensuring that exposure remains diversified," said Todd Rosenbluth, director of ETF research at CFRA Research. If Apple, the largest share in the S&P 500, hovers, it will give a big boost to the traditionally composed index. However, in an equilibrium version, Apple will provide a more subdued advantage. "The downside is that winners can continue to climb higher, and we certainly see that this time," Rosenbluth said.
Beyond greater diversification, advocates say, the same weighting benefits from a greater emphasis on shares with smaller companies and companies in more financially sensitive, so-called value industries.
And because balanced portfolios need to be periodically balanced, it's an inherent counter-strategy that forces investors to "trim what's recently loved and buy what's hated," said Rob Arnott, director of investment advisory services Research Affiliates.
Invesco S&P 500 Equal Weight is balanced quarterly. One competitor, Goldman Sachs Equal Weight US Large Cap Capacity ETF, which tracks an index that is almost – but not exactly – identical to the S&P 500, is balanced monthly.
Despite the arguments for equal weighting, the strategy is still an acquired taste that relatively few investors have acquired.
Invesco ETF had $ 16.8 billion in assets at the end of 2019, according to Morningstar, and Invesco's equilibrium S&P 500 equity fund had less than half that amount. This sum was dwarfed by $ 307.4 billion in the S&P 500 SPDR. Equities were similarly skewed for other equilibrium E.T.F.s and their capitalized weighted equivalents.
The case for equal weighting may seem more difficult to do these days, as the market has behaved in ways that have all but eliminated the benefits. For example, large stocks have beaten small over the past year.
For a long time, investors facing a chronically deficient economy have mercilessly offered sectors that maintain or expand their earnings in times of weak growth, such as consumer staples, tools and technology. At the same time, they have cut them off in value sectors such as energy and materials. Equal weighting to stand out again may require investors to become suspicious again.
"What happens with equal weighting is that everything starts to be the same, and at the next rebalancing, you sell winners and buy more of the losers," said Elisabeth Kashner, director of ETF research at FactSet Research. "It's a winning proposal where everything is regressed for the most part. It's a losing proposition in a momentum market where winners continue to win and losers continue to lose."
Over long periods, balanced funds have excelled. Since its inception in 2003, According to Morningstar, the Invesco S&P 500 Equal Weight had an annual return of 11.2 percent, compared to 10 percent for the capitalization weight of the S&P 500 SPDR.
Over one, three and five years, however, the SPDR ETF has surpassed by at least two percentage points in
Goldman Sachs ETF, since its introduction in late 2017, has beaten the Invesco Fund slightly, but both funds are lagging behind SPDR.
Ms. Kashner cited an additional cost for equilibrium funds: greater risk Invesco S&P 500 Equal Weight has traded at 61 percent more volatility during its lifetime than SPDR, she said.
"You can look at past returns and make statements about performance," Kashner said. "What is more useful is understanding the games you make when you go into something equally weighted. I do not think it is a better or worse alternative. ”
The additional diversification of balanced funds and the prospect of a reversal of the current market's propulsive nature lead some investment advisers to prefer them.  "An equal fund avoids the risk of a company inflating when there is significant overweight in an index," said Dan Weiskopf, a strategist for ETF Think Tank, a website that provides information on E.T.F.'s to financial advisers.
This risk is higher when a fund focuses on one sector rather than the entire market. The results of the S&P 500 Consumer Discretionary Select Sector SPDR, for example, are largely priced out of Amazon, which accounted for 24.2 percent of the portfolio in early January. Home Depot, a long yet fierce second, accounted for about 10 percent.
Mr. Rosenbluth also favors the strategy, recommending Goldman Sachs equilibrium E.T.F., the Invesco covering the S&P 500 and Direxion Nasdaq 100 equilibrium E.T.F. He also likes SPDR equilibrium sector E.T.F.s. But he acknowledged some reservations.
Equilibrium tends to be "more expensive, smaller in size and trade less often than the cap-weighted alternatives," he said. The diversification they provide outweighs the disadvantages, in his view, "but they are things that investors need to keep in mind."