Below is an updated chart highlighting the performance of S&P 500 sectors so far in 2015 on a cap-weighted and equal-weighted basis. The big blue chips in the S&P have done much better than the smaller companies have this year. The cap-weighted index (the one you see quoted everywhere) is down 2% on the year, while on an equal-weight basis, the average stock in the index is down 4.1% YTD.
Looking at the ten sectors, there are some pretty notable divergences. But first let’s look at the disastrous Energy sector. Cap-weighted, the Energy sector is down 25% YTD, while the average stock in the sector is down even more at 29%.
The two Consumer sectors are the big standouts in terms of cap-weighted versus equal-weight performance. On a cap-weighted basis, the Consumer Discretionary sector is up 8.3% — by far the most of any sector. But on an equal-weight basis, the average Consumer Discretionary stock is down 3% on the year. So all of the gains for the cap-weighted sector have come from just a few large stocks, most notably Amazon.com (AMZN) and Netflix (NFLX).
The returns for Consumer Staples are the complete opposite. On a cap-weighted basis, Consumer Staples is up just 1.7% on the year, but on an equal-weight basis, the average Consumer Staples stock in the S&P is up 8.5% on the year. This divergence is due to a few large stocks — most notably Wal-Mart (WMT) — performing horribly this year, even though 75% of the names in the sector are up on the year.
In most years, cap-weighted and equal-weighted returns are relatively close to each other, but this year the divergences in the two Consumer sectors are huge. If you’ve been fortunate enough to hold the Consumer Discretionary sector ETF, which is cap-weighted, you’ve lucked out. If you’ve held the Consumer Staples ETF, Wal-Mart’s issues have really hurt your returns.