Equal weight investing is attracting renewed attention from Australian investors seeking a fresh approach to portfolio construction in 2025. In a landscape dominated by index funds that skew heavily towards the largest companies, the equal weight strategy offers a distinct alternative—potentially levelling the playing field and delivering surprising results.
What is Equal Weight Investing?
Unlike traditional market capitalisation-weighted indices (like the ASX 200), where the biggest companies dominate returns and risk, equal weight investing allocates the same proportion of the portfolio to every stock in the index. If you have an equal weight ASX 200 fund, each of the 200 stocks gets a 0.5% allocation, regardless of its market size.
This means smaller companies—often overlooked in cap-weighted funds—have as much influence as the giants. The strategy aims to capture broader market growth, reduce concentration risk, and tap into the potential outperformance of mid- and small-cap stocks.
Why Equal Weight is Gaining Momentum in 2025
The 2025 market environment is ripe for equal weight strategies. Here’s why:
- Market Concentration Concerns: In recent years, a handful of large-cap stocks (like the ‘Big Four’ banks and mining majors) have driven the lion’s share of ASX index returns. While this boosted returns in some years, it left portfolios vulnerable to shocks in those sectors.
- Regulatory Changes: APRA’s 2024-25 updates on superannuation fund diversification standards have encouraged funds to reduce concentration risk and explore broader equity exposures. Equal weight portfolios offer a straightforward way to comply.
- ETF Innovation: ASX-listed equal weight ETFs, such as the VanEck Australian Equal Weight ETF (MVW), have seen record inflows in 2025 as investors seek to diversify away from market heavyweights.
- Performance Data: Over the five years to 2024, the S&P/ASX Equal Weight Index has periodically outperformed the standard S&P/ASX 200, particularly in years when smaller companies rallied or large-caps stumbled.
Benefits and Trade-Offs of Equal Weight Portfolios
Equal weight investing isn’t just about balancing the scales—it can meaningfully reshape your risk and return profile. Here’s what to consider:
- Diversification: You’re less exposed to the fortunes of a few dominant companies. In 2024, for example, equal weight investors were less affected by the pullback in major banks and resources stocks.
- Potential for Outperformance: When smaller and mid-sized companies outperform, equal weight portfolios can deliver better returns than traditional indices. This was evident during the 2023–2024 ASX rally in tech and healthcare mid-caps.
- Rebalancing Discipline: Equal weight strategies require regular rebalancing—selling winners and buying laggards. This ‘buy low, sell high’ mechanism can help manage risk and systematically capture value opportunities.
But there are trade-offs:
- Higher Turnover: More frequent rebalancing means increased trading costs, especially in direct share portfolios. ETFs and managed funds help minimise these costs at scale.
- Liquidity Risks: Allocating to smaller, less liquid stocks can increase volatility and make large trades harder to execute, particularly in market downturns.
- Tracking Error: Equal weight funds may behave very differently from the market-cap weighted indices most investors benchmark against, especially in years when large-caps dominate.
How to Access Equal Weight Investing in Australia
For most Australians, accessing equal weight strategies is easier than ever in 2025. Here are practical options:
- ASX-Listed ETFs: Products like VanEck Australian Equal Weight ETF (MVW) and BetaShares Australian Equal Weight ETF (QEW) offer instant exposure with low management fees.
- Superannuation Platforms: Many industry super funds now include equal weight options or diversified portfolios that blend equal and market cap weighting, reflecting APRA’s push for more robust diversification.
- DIY Portfolios: Direct investors can build their own equal weight portfolios, though this is best suited to those comfortable with ongoing rebalancing and brokerage costs.
It’s important to match your investment horizon, risk tolerance, and cost sensitivity with the right structure. The growing array of ETFs and managed funds has lowered barriers for everyday Aussies to benefit from this approach.
The Bottom Line
Equal weight investing is more than a theoretical tweak—it’s a practical response to today’s concentrated markets and evolving regulatory landscape. With 2025 shaping up as a year of heightened market rotation and regulatory focus on true diversification, equal weight strategies are likely to feature in more Australian portfolios than ever before.
