It’s claimed by some portfolio theorists that higher returns and less risk can be achieved when investing in an index by allocating equal amounts of capital to each company and periodically rebalancing. But two exchange-traded funds (ETFs) that do this have underperformed the S&P/ASX 200 and S&P 500 by 0.62 per cent and 3.5 per cent respectively on average over the five years to September 30. What happened?

BetaShares senior investment strategist Cameron Gleeson puts underperformance of the BetaShares S&P 500 Equal Weight ETF down to the outsize impact of the technology giants on the S&P 500 index. “All the return [in the S&P 500] has been down to seven names,” he says (meaning Apple, Alphabet, Google, Microsoft, Tesla, Nvidia and Meta).