Tag Archives: equal weighting
Equally Weighting within Sectors: Impact and Potential Applications
The outperformance of equal weight indices is well documented, especially for the S&P 500® Equal Weight Index’s 20 years of live history. Equal Weight’s relative returns reflect the impact of several important index characteristics. For example, smaller-size exposure and (anti-) momentum effects together account for around 75% of the historical variation of its relative returns….
Watch Your Weighting Scheme
2022 has witnessed a recalibration across financial markets, as investors have digested the impact of higher interest rates amid elevated inflation. Despite bouts of optimism that the U.S. Federal Reserve would take a more dovish stance, and better-than-expected corporate earnings, Exhibit 1 shows that the vast majority of large-, mid- and small-cap indices declined through…
Dissecting the Asset- and Equal-Weighted Fund Performance from the SPIVA® Japan Year-End 2019 Scorecard
In the SPIVA® Japan Year-End 2019 Scorecard, we evaluated the percentage of Japanese active funds that underperformed their respective benchmark indices, as well as the average fund returns on an equal- and asset-weighted basis. Equal-weighted returns are a measure of average fund performance, while asset-weighted returns are a measure of the performance of the total…
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S&P 500 Performance in 2018: How Much Does Size Matter?
2018 certainly proved to be a turbulent period for equities, and the market was especially volatile in the fourth quarter, effectively wiping away all the gains that the S&P 500® had generated in the first three quarters of the year. Overall, the S&P 500 returned -4.38% in 2018. Despite landing in negative territory, the S&P…
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Surprising but Explainable
Equal-weight indices have a small-cap tilt. Therefore, one might naturally assume that the volatility of equal-weight indices is higher than that of their cap-weighted counterparts. Surprisingly, this is not always the case, and we can understand why using the lens of dispersion and correlation. Exhibit 1 shows that the volatility of the S&P 500® Equal…
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Security Selection & Sector Allocation Effects of Equal Weighting the S&P 500®
Constituents of the S&P 500 Equal Weight (EW) and S&P 500 are identical, but the EW version is rebalanced quarterly so that every company has equal representation after the rebalance. That often results in significantly different performance between the two indices, because equal weighting gives more representation to smaller stocks and alters the distribution of…
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The Rest of the Story
This morning’s Wall Street Journal offered a partial explanation for the failure of most active managers to outperform their cap-weighted index benchmarks in 2014. The proffered explanation is that “the rally in U.S. stocks was generally led by giant-company shares, such as Apple Inc., which rose 40%.” Since most active funds are underweight most mega-cap…
- Categories Equities, S&P 500 & DJIA, Strategy
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Creating a Performance Tailwind
Some stock selection schemes seem silly. This weekend’s Wall Street Journal reports the results of two hypothetical portfolios which are clearly intended to be nonsensical. One example, the so-called “Graham and Buffett Portfolio” comprises stocks whose ticker symbols consist only of the letters found in the names “Benjamin Graham” and “Warren Buffett.” Silly it may sound, but…
- Categories Equities, S&P 500 & DJIA, Strategy
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The Power of Blind Luck
This is a story about the power of randomness, and its application to investing. A good few years ago, I had the pleasure of meeting Bob “The Rock” Cooper. Bob, an otherwise unassuming sales manager from London, had just won the world championship in the princely sport of “Rock Paper Scissors”. Yes, there is such a…
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Ready to Roll or Need to Weight?
In the past few years a number of indices have been launched with a goal of minimizing the impact of contango. The first indices launched with this goal were the simple (1-5 month) forward indices and the relatively static S&P GSCI Enhanced. In the time period from Aug 2004-May 2011, mentioned in my prior post, these…
- Categories Commodities, Strategy
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