Tag Archives: concentration
Examining Equal Weight
In this tumultuous market characterized by Fed rate hikes, elevated inflation and a strong dollar, mega-cap growth companies have suffered heavy losses, paced by recent “Big Tech” earnings disappointments from Meta, Microsoft, Alphabet, Amazon and others. The S&P 500® Top 50 declined by 19% over the past 12 months, underperforming the S&P 500 by 5%….
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Sizing Sectors
After peaks in S&P 500® concentration, the S&P 500 Equal Weight Index has tended to outperform, suggesting that there is a relationship between changes in concentration and the relative performance of equal weighting. But, does this relationship also occur at the sector level? Using the historical adjusted HHI (Herfindahl-Hirschman Index), we’ve previously established that concentration…
- Categories Equities
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Contemplating Concentration
After the exceptional performance of large-cap stocks in recent years, concentration concerns naturally come to mind. There are many ways to measure concentration. A simple method is to add up the weight of the top names, but the drawback with this approach is it doesn’t incorporate all the constituents in an index. The Herfindahl-Hirschman Index…
- Categories S&P 500 & DJIA
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No Safe Harbor for Stockpickers
We can use volatility and its components dispersion and correlation to analyze stock selection conditions globally. Most active managers run less diversified, more volatile portfolios than their index counterparts. Active managers should prefer above-average dispersion because stock selection skill is worth more when dispersion is high. The role of correlation is more subtle. While counterintuitive,…
- Categories Equities, S&P 500 & DJIA
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Equal Weight Indexing during Economic Recovery
2020 was a year for the history books – especially from a finance perspective. With COVID-19 ripping throughout the globe, we saw equity markets decline rapidly as several countries closed their borders. At the same time, however, we saw some companies flourish as people spent more time at home. Companies like Apple, Microsoft, and Google1…
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The Case for Equal Weight Indexing
2020 witnessed outperformance from some of the largest S&P 500® companies as investors expected these firms to be better placed to navigate the COVID-19 environment. Exhibit 1 shows that this outperformance led to the largest names accounting for an unusually high proportion of the U.S. large-cap equity benchmark, and therefore having a bigger impact on…
Continued Dominance of Growth Style Investing
Growth style investing has outperformed value for over a decade but its relative returns against value so far in 2020 have been unprecedented: the S&P 500® Growth index boasts its highest-ever year-to-date relative returns (+32%) versus its value counterpart through the third quarter. This comes despite growth’s eight-month winning streak coming to an end in…
- Categories Factors, S&P 500 & DJIA
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Concentration Concerns
Readers of this morning’s Wall Street Journal learned (on the front page, no less) that many of the largest investors in the U.S. equity market hold similar portfolios. “The overlap in the top 50 stockholdings between mutual funds and hedge funds…now stands at near-record levels, a study by Bank of America Merrill Lynch found.” An…
- Categories Equities, Factors, S&P 500 & DJIA
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Higher Concentrations in the S&P 500 could lead to Equal Weight Outperformance
At last Friday’s close, S&P Dow Jones assigned a number of technology and consumer discretionary names into a new “Communication Services” sector classification. Relative to the old Telecommunication Services definitions, the sector has grown from 3 to 22 companies (not counting dual share listings) and is less concentrated in absolute terms. However, Communications Services remains…
- Categories Factors, S&P 500 & DJIA, Strategy
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How Equal Weight Avoided Japan’s “Lost Decades”
S&P Dow Jones Indices recently launched the S&P Japan 500 Equal Weight Index, an equal-weight version of the S&P Japan 500. Over the 15-year period ending in February 2018, encompassing the latter part of Japan’s so-called “lost decades” of stagnant equity returns, the equal-weight index would have outperformed the cap-weighted Japanese equity benchmark by a stonking…
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