Equal weight ETFs, such as the Guggenheim S&P 500 Equal Weight ETF (RSP) and the PowerShares Russell 1000 Equal Weight ETF (EQAL), have gotten a lot of attention lately thanks to their performance relative to the broader market. That's not surprising considering that small caps and mid caps, two areas of the market that receive greater investment in equal weight ETFs, have outperformed the S&P 500 over the past five years. The two funds listed above beat the S&P 500 by 2.5% and 3.6%, respectively, in 2016 alone.
Where equal weight ETFs go from here, though, is some matter of conjecture. Equal weight funds generally perform best when smaller companies outperform as has been the case lately. After a 26% return in 2016 and with a forward P/E of 21, small caps (SLY) might be looking a little overcooked and primed for a period of underperformance. If that's the…
