^{Source: CME Group, Bloomberg, SPDJI, Data as 27 May 2025}

In February 2024, we launched the E-mini S&P 500 Equal Weight Index futures to meet investor needs for equity diversification. The futures contracts provided another sleeve of exposure, liquidity, flexibility and risk management to the investment ecosystem. EWF has seen notable growth in open interest (OI) over the past year as shown in Exhibit 3. 

Given the product is relatively new, OI grew strongly between May and August 2024, hovering around USD 2.5 billion in notional value throughout Q4 2024, demonstrating rapid adoption from market participants, as illustrated in exhibit 4. 

Furthermore, we enabled derived block functionality as of December 2024. A derived block trade is a block trade consummated by a party eligible to engage in block trades, in which the price and quantity of the trade depends on one or a series of hedging transactions in an eligible related market. The derived blocks functionality has seen robust use by market participants, with trades ranging in notional size between USD 20 million and USD 160 million. 

The Equity Index futures and options toolkit allows portfolio managers to maximize capital efficiencies, minimize portfolio risks, execute both long and short positions and generate portable alpha investment strategies. Key benefits of the futures, include, but are not limited to:

1. Tight pricing of the markets on a lit screen that offers transparency.
2. Flexibility to source and manage liquidity risk through execution methods such as Basis Trade at Index Close (BTIC), block and derived block trades and EFRP (Exchange for Related Positions). 
3. Capital efficiencies: Optimize capital deployment, cash equitization and margin efficiencies.
4. Around-the-clock trading: Investors can manage risk nearly 24/7 through CME Globex and bilateral block trading.

^{Source: CME Group, SPDJI, Bloomberg, average daily volume (ADV)
The Growing S&P 500 Equal Weight Index Liquidity Ecosystem}

Historically, equal weight indices have demonstrated longterm outperformance, boosted by their weighting to smaller-cap and value stocks, which often carry associated risk premia. The inherent small-cap tilt of equal weight strategies has historically enhanced returns, especially during periods of market correction or volatility. Moreover, the reduced concentration in the largest names has led to more resilient performance historically that has helped the index withstand market fluctuations.

^{Source: CME Group, SPDJI,  rebased to 100 as 8 January 2003, data up till as 27 May 2025}

Exhibits 7 and 8 plot over time the weightings of both the Magnificent 7 and the bottom 490 stock weightings in the S&P 500. While stock concentration is high by historical standards, it isn't unique. The U.S. equity market had a high share in ‌global markets in the early 1970s, although the drivers were very different. In that period, the seven largest companies belonged to the oil sector – Exxon and Mobil, the auto sector – Ford, GM and Chrysler,  together with General Electric and IBM. The U.S. equity market has seen an extraordinary rise in value since the global financial crisis (GFC), strongly outpacing that of other major markets, taking its share of the global equity market to above 64%.

What this means for market-cap weighted indices is that its performance is primarily driven by a small opportunity set of stocks. This could potentially lead to higher unintended risk and greater realized volatility compared to returns in a less concentrated and more diversified market.

^{Source: CME Group, SPDJI, Note that Tesla entered the S&P 500 as of 21 December 2020, * in S&P 500 Index
Herfindahl-Hirschman Index (HHI), the HHI, defined as the sum of the squared index constituents’ percentage weights,is a widely used concentration measure. See Anu Ganti & Craig J. Lazzara in “Concentrations within Sectors and Implications for Equal Weighting”}

Another form of market concentration that has emerged in markets over recent years is at the sector level, particularly with the rise of the technology sector. As of May 30, 2025, the weight of the information technology sector in S&P 500 stands at 31.6%. The maximum sector weight since 2000 in the index recorded was 33.6% in August 2000, based on monthly data.

The S&P 500 Equal Weight Index addresses sector concentration risk. While information technology and communication services are underweight, other sectors such as industrials, materials, real estate and utilities are almost double their weight relative to the S&P 500 Index. Whenever an overweighted sector under or outperforms in relative terms, the equal weighted index under or outperforms its cap-weighted equivalent. Over the longterm, outperformance of Equal Weight was less about sectoral weightings and mostly from equally weighting within sectors. From a risk perspective, switching from a cap-weighted index to an equal weight index will shift the sources of risk, factor style and sector leadership.

Equal weighting exposes investors to active risk because of deviations in sector weights, leading to active factor risk relative to the S&P 500 Index. Equal weighting has significant tilts towards factors such as small-cap companies, a positive exposure to value and a negative exposure to momentum. Similarly, for momentum, equal weighting outperforms cap weighting when it performs poorly and vice versa, assuming all else being equal.

By design, the quarterly rebalancing helps to manage weight drift and allows for the potential benefits of mean reversion in equity market valuations as well as anti-momentum qualities, i.e., selling the winners and buying the losers. 

In assigning an equal weight to each stock (of 0.20%), the S&P 500 Equal Weight Index aims to provide a more diversified representation of the U.S. stock market, spreading the weight of the index more evenly across its constituents. Thus, the S&P 500 Equal Weight Index can mitigate the idiosyncratic risk associated with individual stock performance and help reduce the overall risk profile of the index.

^{Source: CME Group, SPDJI, Benchmark: S&P 500 Index. 1 Year trailing beta to benchmark = 0.81, As of May 30, 2025, the S&P 500 index comprised 503 constituents.}

• The concentration of mega-cap companies in the S&P 500 has sparked debate about market diversification and risk. 
• The S&P 500 Equal Weight Index offers a compelling alternative by reducing concentration risk and providing a more balanced representation of the U.S. equity market. 
• The introduction of E-mini S&P 500 Equal Weight futures has further enhanced the liquidity and flexibility of this index, making it an attractive option for portfolio managers and investors seeking to manage risk and optimize capital deployment. 
• As market conditions continue to evolve, the equal weight approach is likely to remain a relevant and strategic choice for broad-based equity exposure.