The equally weighted to outperform the market-cap weighted?

Key Comments

• The S&P 500 Equal Weight Index (SPW Index) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the index is allocated a fixed weight – or 0.2% of the index total at each quarterly rebalance.
   
• Year-to-date, the SPX has significantly outperformed the SPW, largely due to the market's enthusiasm for artificial intelligence as a significant driver of this year's rally. However, the outperformance has been skewed towards the stellar performances of a small group of technology giants. Seven of the biggest constituents — Apple, Microsoft, Google’s owner Alphabet, Amazon, Nvidia, Tesla and Meta — have ripped higher, gaining between 40 per cent and 180 per cent this year. The remaining 493 companies are, in aggregate, flat.
  
  
   
• However, it appears that things have shifted towards a different direction since June –  SPW index has outperformed the SPX index. US mid-cap shares have outperformed their larger peers in June as investors bet on the strength of the domestic economy and AI stocks are no longer experiencing significant rallies. Cheaper valuations and hopes for a muted economic downturn imply that mid-cap stocks might continue to look more attractive.
   
• In the current environment where cap-weighted indexes are dominated by just a few names, equal weighting can mitigate concentration risk. Equal weighting offers more protection if a large company or sector experiences a downturn. In addition, by looking at longer time frame, the S&P Equal Weight Index performance will eventually converge to S&P 500 Index. It may be a good timing to enter an outperformance trade to realize the performance convergence further down the road.
  
  

Product Solution

Indicative Terms

Indicative only, subject to the confirmed level on the trade date

Key Risks

• The product is only principal protected if investors hold it until maturity date.
• The product is subject to market volatility and the issuer’s credit risk.
• In the worst-case scenario, investors may experience a total loss of capital in the event of issuer’s default.

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