Select 50: why we have added this fund to the list

Important information -  the value of investments and the income from them can go down as well as up, so you may get back less than you invest. 

Every three months, we work with our fund selection partner Fundhouse to review the constituents of the Select 50. In the latest quarterly review, we added a new fund to the list - the Legal & General S&P 500 US Equal Weighted Index Fund. In this article, we explain why we have added this fund, discuss what an equal weighted tracker fund is and suggest why you might consider investing in this one in particular.

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What does ‘equal weighted’ even mean?

Before we look at the fund itself, we need to clear up some jargon. Bear with us. Specifically, let’s clarify the difference between a market capitalisation weighted stock market index and an equal weighted one. 

Think of an index such as the S&P 500 as a pie chart, with 500 segments representing individual companies in the index. With a market capitalisation weighted index, the size of these segments will vary according to the value of each company. A big company like Apple will be represented by a bigger segment than a smaller one like American Express. In fact, Apple’s segment will be 15 times bigger than American Express’s because its value of nearly $3trn is around 15 times bigger than Amex’s $200bn value. 

An equal weighted version of the S&P 500 index can also be represented by a pie chart. But in this case each segment is the same size. That is because every company in the index is treated the same. It represents 0.2% (one five hundredth) of the value of the whole index. 

Why does this matter?

In recent years, the S&P 500 index has become increasingly dominated by a small handful of big technology funds. The so-called Magnificent Seven - Apple, Amazon, Alphabet, Microsoft, Nvidia, Meta and Tesla - account for about a third of the value of the US benchmark index. 10 years ago, they represented just one dollar in eight of the S&P’s total worth. Their weighting in the index has increased because their shares have performed much more strongly than the rest of the market. 

Take the two companies already discussed. Over the past 15 years, the share price of American Express has risen more than five-fold. But it has been left behind by Apple, which has seen its value rise more than 20-fold over the same period. 

If you have invested in a traditional market capitalisation weighted passive fund, tracking the S&P 500, you have benefited from the outperformance of the Magnificent Seven because more of your money has been invested in the best-performing companies.  

Passive funds tracking the US stock market have been a good place to invest in recent years. And in large part this has been a consequence of the way they are put together. Many investors, who thought they were simply gaining exposure to the US stock market, have instead found themselves in the right place at the right time. They have inadvertently placed a big bet on the continued outperformance of big tech stocks.

Why might that no longer be the case?

Since the start of 2025, the relative performance of the big tech stocks has deteriorated. Only Microsoft and Meta are higher than they were at the start of the year, and only marginally so. The other five shares in the group have fallen in value. Tesla, the worst performer, is 29% down and the others have dropped by between 10% and 20%. 

There are several reasons for the recent underperformance, which we don’t need to go into here (think high valuations, tariffs, trade tensions, inflation, interest rates). What matters for investors is that the assumptions that have underpinned the strong performance of traditional US passive funds may no longer apply. And that has prompted growing interest in alternative ways of getting exposure to the US stock market.  

Pros and cons of an equal weighted index

One consequence of the way in which market capitalisation weighted and equal weighted indices are constructed is that their exposure to different sectors and industries looks very different. So, for example, the information technology sector will represent 30% of a market cap weighted S&P 500 index but less than half as much in an equal weighted version. Industrial stocks, on the other hand represent more than 15% of an equal weighted index, but less than 10% of the market cap weighted version, according to S&P. 

So, one reason to favour an equal weighted index today would be if you thought that the relative underperformance of the technology sector was likely to continue into the future. This, by the way, is not why we introduced this fund to the Select 50 list. Its inclusion does not imply a view either way on our behalf but simply a desire to allow our investors to implement that judgement themselves or just to have a more broad-based exposure. 

When deciding whether to get an exposure to the US through either a market capitalisation or an equal weighted index, it is worth bearing in mind that the two might behave differently in different market conditions. 

For example, history suggests that equal weighted indices might be slightly more volatile than their market cap weighted counterparts. The lower average market value of their constituents and their weighting towards more cyclical sectors like industrials might mean they fall more in a downturn and recovery more quickly as markets rally.

Why did we choose the Legal & General fund?

The Legal & General S&P 500 US Equal Weight Index Fund launched in October 2024. As at 31 March 2025, it had assets under management of £990m. Legal & General already provide some passively managed funds on the Select 50 List (including the Legal & General Global Equity Index Fund) and we are comfortable with them as a passives provider. This fund seeks to replicate as closely as possible the Equal Weight index, which in turn typically holds all, or substantially all, of the stocks in the main S&P 500 Index. While it is a relatively new fund, it has tracked the underlying index closely since launch and, with an overall charge of 0.15%, is well priced compared to alternative funds. 

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