By taking out the cap-weighting aspect, the equal-weighted ETFs will naturally have smaller-cap skews.
As noted, this is one mechanism an advisor can use to gain a smaller-cap tilt without altering an existing asset class allocation. The degree of the tilt can vary depending on the market-cap segment. I will focus on the large-, mid- and small-cap names from above.
|Equal Weight S&P 500||37.50||96.4||3.6||-||31.3||68.7|
|Market Cap S&P 500||128.30||99.5||0.5||-||52.2||47.8|
|Equal Weight Russell 1000||22.99||72.9||26.8||37.1||62.9|
|Market Cap Russell 1000||113.37||94.8||5.0||52.7||47.3|
|Equal Weight Russell Midcap||8.60||66.2||33.4||-||45.3||54.7|
|Market Cap Russell Midcap||11.98||86.5||16.2||-||49.5||50.5|
|Equal Weight Russell 2000||1.12||-||16.8||82.8||45.0||55.0|
|Market Cap Russell 2000||1.74||-||38.2||61.7||50.2||49.8|
Because the range of market caps defining the large-cap universe is much broader than that of mid- and small-cap universe, equal weighting in large-caps will have a more dramatic effect. Stated differently, the difference in size between the largest and smallest large-cap name will be much wider than the difference in size between the largest and smallest small-cap name.
This effect can be seen in both the market-cap differential as well as the style analysis. Focusing on the equal- versus cap-weighted Russell 1000 from above, the market-cap difference is nearly $90 million. The equal weight also has a larger skew toward the midcap exposure than the market-cap-weighted.
Looking at the style analysis, the equal weight has a nearly two-thirds value and one-third growth split versus the market-cap-weighted—nearly 50/50.