Bank of America Advocates for Equal-Weighted S&P 500 Investment Strategy

Bank of America has issued a recommendation for investors to consider the equal-weighted S&P 500 index over the traditional capitalization-weighted S&P 500 index. Savita Subramanian, the firm’s head of U.S. equity and quantitative strategy, highlighted that the equal-weighted index offers more attractive valuations, particularly as it has only risen by 7% this year compared to the 14% increase of the broader S&P 500. Subramanian noted that the equal-weighted index is trading at a significant discount, reminiscent of levels seen during the Tech Bubble. Subramanian anticipates a shift in stock performance dynamics, moving away from the mega-cap stocks that have dominated the market's early rally this year. She emphasized that future returns will likely be driven more by earnings rather than price-to-earnings multiples. Additionally, she pointed out that other market segments, such as the small-cap Russell 2000 index, present even better value, although the equal-weighted S&P 500 remains less risky due to its larger, more liquid components. The strategist also mentioned that the equal-weighted S&P 500 has a lower beta, indicating reduced volatility compared to both the cap-weighted S&P 500 and the Russell 2000. This lower risk profile, combined with the current equity risk premium, suggests that the equal-weighted index should trade at a premium to both the S&P 500 and the Russell 2000. Investors looking to capitalize on this strategy may consider the Invesco S&P 500 Equal Weight ETF (RSP).