MSCI World all countries equal weighted index

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singletond
Posts: 27
Joined: Mon Mar 22, 2010 6:15 pm
Location: San Antonio Texas

MSCI World all countries equal weighted index

Post by singletond »

WSJ's 6/7/14 article "A random way to get rich" by Brett Arends, advocates 80% "Brett's randomly selected stocks" and 20% treasury bills with the stocks supposedly tracking the index above. I wanted to see if the graph in the article (of course it shows Brett's random selection outstripping S&P 500 since 2004) could be reproduced from public data.

I found one ETF tracking it, "NYSE Rydex EWAC", which was launched in 2011 but "stopped trading in March 2012 due to lack of investor interest" - which suggests tracking it is not such a bright an idea.

Nevertheless does anyone know of a fund/ETF that tracks that index?

Dave
Aish
Posts: 128
Joined: Thu Mar 20, 2014 7:49 pm

Re: MSCI World all countries equal weighted index

Post by Aish »

If I had to guess why there was out-performance, it would be because the smaller markets (emerging markets in general) would generally outperform in the long run (due to increased risk). Therefore, the Index underweights large markets and overweights smaller markets. You could do the same in your portfolio by tilting towards emerging markets.
grok87
Posts: 10512
Joined: Tue Feb 27, 2007 8:00 pm

Re: MSCI World all countries equal weighted index

Post by grok87 »

singletond wrote:WSJ's 6/7/14 article "A random way to get rich" by Brett Arends, advocates 80% "Brett's randomly selected stocks" and 20% treasury bills with the stocks supposedly tracking the index above. I wanted to see if the graph in the article (of course it shows Brett's random selection outstripping S&P 500 since 2004) could be reproduced from public data.

I found one ETF tracking it, "NYSE Rydex EWAC", which was launched in 2011 but "stopped trading in March 2012 due to lack of investor interest" - which suggests tracking it is not such a bright an idea.

Nevertheless does anyone know of a fund/ETF that tracks that index?

Dave
Equal weighted indices, and other spindexes are a bad idea. Vanguard has research out showing that even though they appear to outperform it is due to their style/factor exposures. After you adjust for that they underperform, likely due to transaction costs.
Transaction costs can be much larger for international and small cap stocks.

So if you want a similar approach to the equal weighted index, figure out what the average market cap of the equal weighted index is and recreate that by a blend of the available vanguard cap weighted index funds.

Hope this helps
RIP Mr. Bogle.
berntson
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Joined: Mon Oct 29, 2012 12:10 pm

Re: MSCI World all countries equal weighted index

Post by berntson »

My understanding is that equal weight strategies have historically gotten a performance boost from rebalancing even after accounting for their tilt towards small and value. Problem is, the historic boost is about the same size as the added fees investors pay for equal weight funds. So an ordinary investor ends up with the rough of equivalent of 50% madcap value and 50% large blend.
Topic Author
singletond
Posts: 27
Joined: Mon Mar 22, 2010 6:15 pm
Location: San Antonio Texas

Re: MSCI World all countries equal weighted index

Post by singletond »

Thanks, to each of you.
Dave
grok87
Posts: 10512
Joined: Tue Feb 27, 2007 8:00 pm

Re: MSCI World all countries equal weighted index

Post by grok87 »

berntson wrote:My understanding is that equal weight strategies have historically gotten a performance boost from rebalancing even after accounting for their tilt towards small and value. Problem is, the historic boost is about the same size as the added fees investors pay for equal weight funds. So an ordinary investor ends up with the rough of equivalent of 50% madcap value and 50% large blend.
Thanks for the link the paper by Uppal et al. It's an interesting idea, that monthly rebalancing is especially good as it captures a theorized 1 month "reversal" phenomenon in stock prices. I do still worry about the costs of such a strategy. They say "....even after allowing for transaction costs of fifty basis points."
that assumption seems rather ad hoc. I guess i'd like to see what the turnover of such as strategy would be. 50 bps could be low.
RIP Mr. Bogle.
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