Is this a simple way to beat the ASX 200?

The S&P/ASX 200 is Australia's most widely followed and understood benchmark. For investors seeking broad market exposure, index tracking exchange-traded funds (ETFs) have become the vehicle of choice, allowing them to own a slice of this entire market with a single purchase while eliminating the need to research and select individual stocks.

Vanguard's Australian Shares Index ETF (ASX: VAS) is by far one of the most popular ETFs in this space, renowned for its simplicity in providing investors with instant diversification across the top 300 companies listed on the ASX. VAS isn't alone—plenty of other exchange-traded products track the S&P/ASX 200, including Betashares' ASX 200 ETF (ASX: A200) and iShares' Core S&P/ASX 200 ETF (ASX: IOZ).

While the S&P/ASX 200 remains the widely tracked and understood benchmark, there is a subtle way to beat it, backed by academic research.

Meet Equal Weighting

Traditional market-cap weighted indices like the S&P/ASX 200 give the biggest companies the largest influence. While this approach has dominated investing for decades, it creates inherent concentration risks that many investors don't fully appreciate.

When financial stocks represent two-thirds of Australia's benchmark index, investors buying what appears to be a diversified 200-stock fund are actually making a concentrated bet on banks and resources companies.

Equal-weight ETFs take a different approach entirely. Instead of sizing positions based on company value, they give every stock the same weighting—whether it's a mega-cap bank or a mid-sized industrial company.

The MVIS Australia Equal Weight Index (ASX: MVW), which tracks 74 of Australia's largest and most liquid stocks, demonstrates this approach in practice. All of its holdings have approximately 1.0-1.8% weighting in the ETF. Research shows this index is three times better diversified than the S&P/ASX 200.

The below table observes how MVW stacks up against the S&P/ASX 200:

Calculated using ASX top 200 market capitalisation on 18 Jun 2025 | Source: Market Index, VanEck

Academic Research

Research spans both academic institutions across multiple countries (UK, France, Germany, Australia) and major financial industry players, including:

• University of London's Cass Business School - Has demonstrated the long-term outperformance of equal weight investing.

• EDHEC Business School - Research shows that equal-weighted portfolios outperform value-weighted portfolios in terms of total mean return, four-factor alpha, and Sharpe ratio.

• Goethe University - Academic studies support equal weight methodology outperformance.

• Monash University (Australia) - Local research demonstrates equal weight advantages in Australian markets.

• Equal-weight strategies have been documented since the 1970s and gained significant traction in the US and Europe during the 1990s.

• The MVIS Australia Equal Weight Index has outperformed the S&P/ASX 200 in 11 out of the last 14 years

Recent Performance

The table below shows how MVW compares to the S&P/ASX 200 over various time frames.

Data as at Thursday, 19 June 2025

Despite CBA being a major ASX 200 driver—up 19% year-to-date and 44% over twelve months—the equal-weight ETF has still managed to outperform by allocating greater weightings to stocks like Technology One, gold miners, and industrials such as Brambles and Qantas.

The equal-weight structure also provides downside protection from underperforming heavyweights. While BHP has declined 9.5% year-to-date and 15% over twelve months, it represents just 1.1% of the equal-weight ETF compared to approximately 10% of the S&P/ASX 200.

MVW also has a marginally higher dividend yield, currently 4.01%. Whereas VAS and A200 yield 3.22% and 3.09% respectively.

However, this approach cuts both ways. Equal-weight strategies tend to underperform during periods when banks and miners surge, as they have reduced exposure to these traditionally dominant sectors.

Overall, this provides food for thought as a heavyweight like Commonwealth Bank crosses the $180 level, trading at an eye-watering price-to-earnings ratio of 31x.