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Long-Term Investors Can Beat The S&P 500 By Favoring Equal-Weighted ETFs

TedTed
in Fund Discussions
FYI: So if, like most of us, you’re an index investor, how do you reduce the risk of owning one big individual stock, even if it has been a great one, like Apple? Indexes are supposed to provide that diversification, but in a market-cap-weighted index such the S&P, one or two stocks that have racked up big gains can become a disproportionate share of your holdings.

Equally weighted index ETFs solve that problem. Since they hold an equal amount of every stock in a sector or index, they rebalance regularly (usually every quarter) by selling off the excess gains of the winning stocks and buying enough of the losers to maintain the portfolio’s equal weighting. Equal weighting is part of “factor” or “smart beta” investing, in which investors identify what BlackRock calls “broad, historically persistent drivers of return” to produce better risk-adjusted performance than traditional, market-cap-weighted indexes
Regards,
Ted
https://www.marketwatch.com/story/long-term-investors-can-beat-the-sp-500-by-favoring-equal-weighted-etfs-2018-09-26/print

Comments

  • beebee
    edited September 2018
    Here's a nod for equal weight Health care ETFs:
    If one is so inclined, a superior way to make a long-term bet on health care stocks would be to equal-weight the portfolio. Since the start of 1990, the S&P 500 equal-weighted health care sector (14.3% CAGR) has outperformed both the broader index and the market capitalization-weighted S&P 500 health care sector, while suffering less severe drawdowns:
    Article:
    the-case-for-health-care-stocks

    image

    RYH would be one choice:
    etfdb.com/index/sp-equal-weight-index-health-care/
  • Bud
    More from Hamtil on the inflation advantage of equal weight.

    http://www.fortunefinancialadvisors.com/blog/the-inflation-advantage-of-equal-weight

  • davidrmorandavidrmoran
    Gold writes that the 'tables below tell the story'. but in fact it is ONLY for the 10y period where RSP outperforms. That first year appears to have counted for a whole lot, in other words.

    If you compare RSP with SP500 for 9-8-7-6-5-4-3-2-1y, it lags in each one.

    I for one had not realized the degree to which the last decade has been LC. I knew it had, but not this extent.
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