Standard & Poor’s Indices has launched an equal weighted version of the S&P/TSX 60, the primary large cap benchmark for the Canadian equity market, the index provider said Monday.

The S&P/TSX 60 Equal Weight Index has the same constituents as the market capitalization weighted S&P/TSX 60, but each company in the equally weighted version is allocated an equal weight at each quarterly rebalancing. When compared to its underlying counterpart, the S&P/TSX 60 Equal Weight Index offers higher exposure to relatively smaller companies, lower exposure to larger companies and a different risk/return profile, Standard & Poor’s says.

S&P Indices has licensed BetaPro Management Inc. to list and trade an ETF based upon the S&P/TSX 60 Equal Weight Index.

“By design, equal weighted indices give greater importance to smaller-cap companies than traditional market-cap weighted indices,” says Steve Rive, managing director at S&P Indices. “As a result, equal weighted indices will have different risk/return profiles and different sector exposures than their market-cap brethren.”

At each quarterly rebalancing, every constituent in the S&P/TSX 60 Equal Weight Index is assigned an equal weight. Between rebalancings, as stock prices move, the respective constituent weightings in the index will deviate from the equal weight target.

While these deviations could be reduced through more frequent rebalancing, the result would be a much higher level of turnover in the index, leading to higher trading costs for index users, S&P says.

To reduce costs, the index is rebalanced quarterly to coincide with the quarterly share adjustments of the S&P/TSX 60, which take place after the close of the market on the third Friday of each quarter. “Quarterly rebalancing allows the Index to strike an appropriate balance between turnover and the goal of equal weighting,” S&P says.