Recently, there is a phenomenon worth noting—the traditional S&P 500 index price-to-earnings ratio has soared to 29x. What does this mean? Based on historical patterns since 1987, this valuation level essentially implies an annualized return of only -1% over the next 10 years. It sounds a bit frightening.

But here’s an interesting comparison. The same S&P 500 components, when reweighted equally, reduce the P/E ratio to 21x, with an expected annualized return of 6%. Comparing these two numbers, there’s a full 7 percentage point difference.

Why is this happening? Essentially, the big tech giants like the "Seven Giants" are overhyped, pushing their valuations very high. Equal-weighted indices, on the other hand, can balance out small-cap stocks, value stocks, and other sectors, which now look much more reasonably priced. In fact, this has been confirmed—since the end of October last year, equal-weight ETFs have outperformed market-cap-weighted indices by 3.3 percentage points.

However, a word of caution. Over the decade from 2014 to 2024, the annualized return of the equal-weight strategy was actually beaten by the market-cap-weighted index, underperforming by over 4%. What does this tell us? It indicates that whether it makes money or not largely depends on which market style is in favor.

Therefore, analysts suggest that now is a good time to consider increasing the allocation to equal-weighted strategies to achieve better diversification. But don’t put all your chips in one basket—maintaining balance is the key to long-term survival.