Tag Archives: equal weight

The Skew Is Not New

Market observers have noted that the S&P 500’s performance so far this year has been dominated by a small number of technology stocks.  This observation is certainly correct, although it’s fair to question the relevance of a statistic based on fewer than two months’ data.  What’s more important is to bear in mind that this Read more […]

Can High Concentrations Lead to Equal-Weight Outperformance?

Assigning equal weights to each constituent, such as in the S&P 500 Equal Weight Index, historically would have offered material outperformance over capitalization-weighted benchmarks across a range of markets.  Earlier this year, we published a paper examining how this occurred. There are several perspectives one can take, ranging from factor or sector exposures all the Read more […]

What do inventories tell us about the economy?

Declining inventories and rising industrial production may create a strong backdrop for value and momentum strategies Falling business inventory ratios have often been a positive economic indicator. With business inventory levels on the decline, value and momentum strategies could be poised to outperform. A strategy that combines value and momentum could serve as a useful Read more […]

Could Tax Reform Benefit Consumer Spending?

Investment strategies featuring the quality factor could benefit from current trends in consumer spending Retail sales surged by more than 5% in December, eclipsing previous highs. Consumer spending could be further bolstered by recently enacted federal tax cuts. Investment strategies that include the quality factor could benefit from higher consumer spending. Advance estimates of US Read more […]

Mutual Fund Portfolios: Equal Weight or Cap Weight?

Equal-weighted indices typically outperform their cap-weighted counterparts (although 2017 so far has proven to be an exception to the general rule).  This means that portfolio managers can usually create a performance tailwind by equal weighting rather than cap weighting their holdings. But do they?  One way to assess this question is by using the Herfindahl-Hirschman Read more […]

A New Eden, Or Fewer Excuses

In our May dispersion dashboard, we note that “If there is ever such thing as a “stock-pickers’ market”, then the month of May 2017 – at least in some regions – might be the closest approximation we have seen for a decade.” The subject of what, exactly a “stock-pickers’ market” might look like, and how Read more […]

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 Read more […]

Third Quarter Results: Expect Disappointment

This week or next, millions of investors will be receiving statements reporting third quarter performance for their actively-managed mutual funds.  Comparing active results to passive benchmarks has been a frustrating exercise more often than not.  Two observations tell us that the third quarter is likely to be especially painful. We first observe that dispersion is low.  Dispersion gives us Read more […]

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 Read more […]

Even Worse Than You Think

It’s commonly recognized that the average active manager underperforms the market. There are good theoretical reasons why this should be true, and ample empirical evidence that it is true. On average during the last ten years, e.g., 59% of large-cap U.S. equity managers lagged the S&P 500, with comparably poor results for mid- and small-cap Read more […]