Is Invesco Russell 1000 Equal Weight ETF (EQAL) a Strong Smart Beta ETF for 2026?

The debate over smart beta strategies versus traditional cap-weighted indices has long captivated investors seeking alpha without active management. The Invesco Russell 1000 Equal Weight ETF (EQAL) represents one such strategy, offering an alternative to market-cap-weighted benchmarks like the iShares Core S&P 500 ETF (IVV) and the Vanguard S&P 500 ETF (VOO). As 2026 approaches, the question arises: Does EQAL's equal-weight approach justify its higher costs and mixed performance record compared to its cap-weighted peers?

Cost Efficiency: A Clear Divide

Costs remain a critical factor in long-term returns. IVV and VOO charge 0.03%, making them among the cheapest vehicles for large-cap U.S. exposure. In contrast, EQAL's expense ratio of 0.20% is five times higher, reflecting the operational complexity of rebalancing an equal-weight portfolio. While smart beta strategies often justify higher fees with claims of enhanced diversification and risk-adjusted returns, EQAL's cost structure raises questions about its value proposition, particularly for passive investors prioritizing fee efficiency.

Performance: A Tale of Two Strategies

Over the five-year period from 2020 to 2025, EQAL's annualized return of 11.9% lagged behind IVV's 14.76% and VOO's 96.03% total return (equivalent to a 14.68% annualized return) according to SlickCharts. This gap underscores the inherent trade-offs between equal-weight and cap-weighted strategies.

Volatility and Cyclical Exposure
EQAL's performance highlights its sensitivity to market cycles. In 2020, it outperformed IVV and VOO with a 16.63% return, likely due to its broader exposure to mid-cap and smaller constituents within the Russell 1000. However, 2022 proved disastrous: EQAL fell -13.50% according to Yahoo Finance, compared to IVV's -18.16% according to AlphaCubator and VOO's -19.52% according to SlickCharts. This resilience during downturns aligns with the equal-weight strategy's theoretical advantage of reducing overexposure to dominant stocks. Yet, in 2021 and 2023–2025, EQAL underperformed as growth leaders in the S&P 500 surged. For instance, in 2025, IVV returned 18.88%, while EQAL managed 17.24% according to Yahoo Finance.

Diversification vs. Concentration
The Russell 1000 Equal Weight Index, which EQAL tracks, assigns equal weight to its 1,000 components, unlike the S&P 500's market-cap weighting, which concentrates in mega-cap tech stocks. This structure theoretically limits downside risk during sector-specific corrections. However, it also dilutes upside potential when a few stocks dominate the market, as seen in 2021 and 2023. For investors seeking broad diversification, EQAL's approach may appeal, but its performance suggests it cannot consistently outperform cap-weighted benchmarks in all market environments.

Strategic Considerations for 2026

The case for EQAL hinges on its ability to deliver risk-adjusted returns and diversification benefits. Its 1.75% trailing yield, higher than the 0.90% average for its category according to Yahoo Finance, offers income-focused investors an edge. However, this advantage is partially offset by its higher expense ratio.

For 2026, the key question is whether the U.S. equity market will favor broad-based growth or sector-specific momentum. If the S&P 500's large-cap dominance continues, EQAL's equal-weight strategy may struggle to keep pace. Conversely, in a scenario where mid-cap or value stocks outperform, EQAL could shine. Investors must weigh these possibilities against the 0.17% cost disadvantage it carries relative to IVV and VOO.

Conclusion: A Niche Player, Not a Universal Solution

EQAL's equal-weight strategy offers a compelling alternative for investors seeking diversification and reduced concentration risk. However, its higher costs and inconsistent performance against cap-weighted benchmarks like IVV and VOO suggest it is best suited for specific tactical allocations rather than a core holding. For most investors, the combination of low fees and strong historical performance in IVV and VOO remains hard to beat. That said, EQAL retains value in a diversified portfolio, particularly for those willing to accept its trade-offs in pursuit of a non-correlated exposure to the Russell 1000.