Be Wary of Equal-Weight Funds

For a decade, the Standard & Poor's 400 index of mid-sized stocks has beaten both the large-cap S&P 500 and the small-company Russell 2000, and with middling volatility. Keep the trend in mind if you're examining equal-weight exchange-traded funds, which use one of the oldest and most successful alternative-indexing strategies. Equal weighting's success is closely related to the rise of mid-caps, whose continued outperformance is no sure thing. The key to understanding the strategy is to see where it lands you in terms of the most important market exposures.