The S&P 500 Equal Weight Index, tracked by RSP, is something I have long been fond of. sometimes the super-big-firms do better than average big firms, but that's a minority of the time, so the equal weight index has long offered superior returns with much lower risk: SPY's largest single-stock risk is 36 times larger than that of RSP.

Of course, like the "main" S&P 500, valuations go to extremes from time to time, so despite the fact that it's relatively easy to estimate the future trajectory of trend real earnings for RSP, it's hard to get a sane handle of what returns are going to be like in the short to medium term.

From a post of mine on another board, I thought some here might find it interesting:

If you want to have a grasp of the likely valuation level of RSP in the current cycle (not to be confused with its true long run value), I will let you in on a wonderful little metric I came up with. Since RSP (and QQQE for that matter) are both equally weighted, the median of any metric is a very good proxy for the average, while neatly avoiding distortions from a few wild outliers.

Track down the median free cash flow yield among the S&P 500 companies, and divide by 3.00%, being the typical multiple assigned by the market since 2008. That will get you the likely current trading value of RSP, not to be confused with its true fair value versus long run sensible expectations. This works a whole lot better than it has any right to: using FCF yield as your yardstick, valuation levels have stayed in a remarkably narrow range all things considered.

Using that method (and only that method), RSP is around only 10.8% more expensive than usual using "right now" median FCF yield, and about 6.8% more expensive than usual measuring the price against the on trend real median FCF. Using those two methods, you might expect a price of maybe $148-154 this month, versus the current price of $164.35.

Again, not to be confused with an estimate actual fair value, this is merely with reference to what one would expect it to be trading at, given the recent very high free cash flow yields. If/when free cash flow among big firms rolls over, the market value might well do so as well.

Actual fair value is, in effect, the present value of all future earnings, a very different number. The cyclically adjusted earnings yield is poorer than average, even if you look only at the high-valuation era since the millennium.

Jim