"Same Stocks, Different Results... Why Did ETF Returns Diverge by 25 Percentage Points? [Investment Barometer]"

Equal-Weighted Approach Shines Amid Volatile Market
Identical Allocation for Each Stock, Unlike Market Cap Weighting
Superior Performance Also Seen in the S&P 500

While semiconductor stocks have been driving volatility and shaking the stock market, equally weighted exchange-traded funds (ETFs) have outperformed the traditional market capitalization-weighted ETFs. Equally weighted ETFs are being praised for their ability to mitigate the risk of over-concentration in specific stocks that can arise due to index composition.

According to the Korea Exchange on September 3, from July 1 to September 1, equally weighted ETFs holding KOSPI 200 stocks outperformed market capitalization-weighted ETFs. KODEX 200, which represents the market capitalization-weighted approach, fell sharply by -22.15% during this period. As of September 2, Samsung Electronics accounted for the largest share of this ETF at 33.46%, followed by SK hynix at 26.42%.

In contrast, KODEX 200 Equal Weight ETF rose by 2.34% in the same period. Although the constituent stocks are identical, the difference in weighting methodology produced these divergent results. Similarly, TIGER 200 Equal Weight ETF gained 2.70% during the same period, while the traditional TIGER 200 recorded a sharp decline of -23.10%, further highlighting the advantage of the equally weighted approach.

The equal weighting approach allocates the same proportion to every stock when constructing the portfolio. Reviewing the actual portfolio of KODEX 200 Equal Weight ETF, the top holdings are Korea Kolmar at 0.92%, GS at 0.89%, and Cosmax at 0.89%. No individual stock holds an overwhelmingly high proportion, and quarterly rebalancing adjusts each constituent’s market cap weighting to maintain equality.

The outcomes of the indices tracked by these ETFs were also distinct. The annualized volatility rate for the KOSPI 200 index was 57.63% for one year and 37.38% over three years. In contrast, the KOSPI 200 Equal Weight Index showed a much lower annualized volatility of 34.28% for one year and 25.02% over three years—a difference of up to 23 percentage points.

The KOSPI 200’s profound disparity between the two approaches is attributed to the fact that combined, Samsung Electronics and SK hynix comprise over 50% of the index. The sharp market decline in July was primarily due to the significant drop in semiconductor blue chips: Samsung Electronics fell by -21.86% and SK hynix by -36.11% during July and August.

The same trend appeared with the S&P 500 Index in the United States, where equally weighted products have also outperformed this year. According to CNBC, the Invesco S&P 500 Equal Weight ETF (RSP), a representative equal weight ETF, posted a higher year-to-date gain compared to the S&P 500 ETF. Data from ETFCheck shows that as of September 2, this fund returned 15.43% year-to-date, 2.36 percentage points higher than the 13.07% of the flagship S&P 500 ETF, the State Street SPDR S&P 500 ETF Trust (SPY).

Nathan Gerachi, CEO of local asset management firm Novadius, commented: “Investors are increasingly concerned about ‘concentration risk’ inherent in major indices like the S&P 500, as the top 10 stocks now represent nearly 40% of the index.” He further said, “Such risk is especially prevalent among AI-themed stocks and hyperscalers. Investors have begun to question whether high valuations and massive capital expenditures in these sectors will ultimately be justified.”

He added, “At the same time, market performance is broadening beyond just giant tech stocks to a wider range of industries and market sectors. The equal weighting approach not only addresses concentration risk but also allows investors to participate in broader gains if market leadership diversifies.”

This content was produced with the assistance of AI translation services.