An equal-weighted portfolio, also called a 1/N portfolio, allocates the same fraction of its invested value to each of selected holdings. Its target portfolio weight is
This is an allocation of money, not an equal number of shares. It gives a small company the same capital allocation as a large company in the chosen universe. It also creates a maintenance task: different returns move the holdings away from equal weights, so preserving the rule requires rebalancing.
Three equal sleeves, one uneven month
Start with USD3,000 split across three hypothetical investments: USD1,000 in A, B and C. Over one month, their simple total returns are +20%, 0% and −10%. Assume distributions are reinvested within each sleeve, with no external cash flows, interim trades or costs. A sleeve is the investment and any reinvested proceeds accounted for together.
| Holding | Starting value (USD) | Monthly total return | Value before rebalancing (USD) | Weight before rebalancing |
|---|---|---|---|---|
| A | 1,000 | +20% | 1,200 | |
| B | 1,000 | 0% | 1,000 | |
| C | 1,000 | −10% | 900 | |
| Total | 3,000 | 3,100 | 100% |
The portfolio earned USD100, a return of . Because it began equally weighted and had no interim trades, its return is the arithmetic average of the three same-period simple returns:
That average describes this holding period. Applying equal weights again in the next period assumes a reset; a buy-and-hold strategy instead carries the drifted weights forward. Even B, whose value did not change, now has a smaller share of a larger portfolio.
Original synthetic single-period ledger in USD. The dashed line marks the exact one-third target; percentages are rounded to two decimals. Trades assume fractional holdings, unchanged execution prices and no costs.
Restore the weights, not the original dollars
Resetting to USD1,000 per holding would leave USD100 outside those holdings. A fully invested equal-weight reset instead divides the current USD3,100 by three, giving USD1,033⅓ per sleeve.
| Holding | Before reset (USD) | Trade value (USD) | After reset (USD) |
|---|---|---|---|
| A | 1,200 | Sell 166⅔ | 1,033⅓ |
| B | 1,000 | Buy 33⅓ | 1,033⅓ |
| C | 900 | Buy 133⅓ | 1,033⅓ |
The sale funds the two purchases exactly: . Rebalancing at the same prices creates no immediate gain; value remains USD3,100 before costs. These repeating fractions are exact idealised allocations. Rounding trade amounts independently to cents would require a residual-cash or trade-rounding rule.
Under the one-way portfolio turnover convention, divide the value bought (equivalently, sold in this costless self-financing reset) by the pre-trade portfolio value:
Turnover measures trading volume relative to portfolio value; it is not a fee of 5.38%. Actual transaction costs, taxes where applicable, indivisible positions and execution-price changes can alter the achievable reset. The SEC's rebalancing guide explains using sales, purchases or new contributions to restore an allocation, and highlights fees and tax consequences.
For the general drift formula and the one-way turnover convention, SelfMadeQuant's Turnover and the Information Horizon develops both in its opening sections. The public page is a preview; the full lesson requires membership.
Equal capital is only one kind of balance
A capitalisation-weighted portfolio allocates more to larger companies under its specified market-cap basis. Equal weighting removes that size-based rule within the selected universe. The universe still matters: equally weighting companies from one industry does not diversify away their shared industry exposure. Equal company weights also do not imply equal sector weights.
Nor do they produce equal risk contributions. A more volatile holding, or one that moves closely with other holdings, can contribute disproportionately to portfolio variance. Risk parity targets a form of risk balance rather than equal capital. Maillard, Roncalli and Teiletche distinguish the two approaches explicitly in their equal-risk-contribution paper.
Equal weighting is useful as a transparent allocation rule and a benchmark for assessing whether more elaborate portfolio optimisation adds value after costs. It needs no expected-return or covariance estimates to set its target weights, but that simplicity does not make the holdings equally safe, identify the best universe, or guarantee outperformance.
Finally, specify when equality is measured. A portfolio may target equal weights monthly, quarterly or when deviations exceed a threshold; it is generally unequal between resets. S&P Dow Jones Indices' equal-weight index family, for example, uses equal company allocations at quarterly rebalances. That is a particular index rule, not a universal schedule for every equal-weighted portfolio.
Sources
- Qian, E. E., Hua, R. H. and Sorensen, E. H., Quantitative Equity Portfolio Management: Modern Techniques and Applications, Chapman & Hall/CRC, ©2007, §§8.1–8.2, pp. 234–237: passive weight drift, fixed-weight portfolios and one-way turnover.
- Maillard, S., Roncalli, T. and Teiletche, J., On the Properties of Equally-Weighted Risk Contributions Portfolios, working-paper version May 2009, Introduction and §2, pp. 2–4: equal capital allocations versus equal risk contributions.
- SEC Investor.gov, Beginners' Guide to Asset Allocation, Diversification, and Rebalancing, “Rebalancing 101”: restoring an allocation and implementation costs.
- S&P Dow Jones Indices, Equal Weight: provider-specific equal-weight index construction. Web sources checked 26 October 2026.