Equal weight index funds

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BogleInvestorLondon
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Re: Equal weight index funds

Post by BogleInvestorLondon » Mon Aug 08, 2016 8:04 pm

Taylor Larimore wrote:
However, I also have an active fund and my guy has outperformed the market every single year for over 25 years.
BogleInvestorLondon:

Your fund must be the best performing fund in the world. Please give us the fund name and ticker symbol.

Thank you and best wishes.
Taylor
Invesco Perpetual High Income Fund: https://www.invescoperpetual.co.uk/port ... 1ebf0aRCRD

The guys name is Neil Woodford but he left that fund in late 2013 to start on his own. My mother invests in his new fund which has been outperforming. I am from the UK. The FTSE100 is a horrendously bad index and the last time I checked and posted about this here was in November 2015.

"since October 2012 till October 2015, her fund produced a returned 12.9% annually after costs.

My passive approach with VWRL over roughly the same period produced a return of roughly 8.67% before costs."

I used Vanguard All World as a benchmark since I invest in that. We could use the S&P too! I am also not cherry picking any dates.

My mother was lucky enough to invest 20+ years ago.
Last edited by BogleInvestorLondon on Mon Aug 08, 2016 8:11 pm, edited 1 time in total.

Clive
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Re: Equal weight index funds

Post by Clive » Mon Aug 08, 2016 8:11 pm

adtx75001 wrote:Reading that possibly equal weight beats cap weighted. Any opinions? Does vanguard offer them?
The idea is to equal $ weight the initial purchases of individual holdings ... and then let it ride. So no fund provider provides such a option that I know of. History indicates that allocating equal probabilities to each holding/purchase has generally been better than tilting (initially investing more in one compared to another).

Rebalancing back to equal weighting would be a expensive activity. Better to just 3% initially in each of 33 (diverse) stocks, accumulate the dividends and add another stock to the set each year type of lower cost management (assuming 3% yearly dividend). Typically the majority will lag the index, a few totally fail or do very poorly, a few do exceptionally well. The overall average tending to be good. Tendency to become tilted with time (somewhat cap weighted like).

http://www.mauldineconomics.com/frontli ... -mwo040309

... and http://www.forbes.com/forbes/1999/0614/6312298a.html Bogle recommends the ultimate in buy-and-hold investing: a completely static portfolio. He would buy the 50 largest companies in the S&P 500 and then never buy another. The portfolio would ignore the constant small adjustments that Standard & Poor’s makes in the index. If a stock were lost in a merger, Bogle would not replace it.

...

Bogle figures his static-50 fund would cost 0.15% of assets to run. Alas, his successor as chief executive of the nonprofit Vanguard Group, John Brennan, doesn’t plan to offer the product. Creating new portfolios annually (because newcomers would not be allowed into an existing portfolio) would be an administrative headache with each distinct one lacking sufficient economies of scale, Vanguard believes.

selters
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Re: Equal weight index funds

Post by selters » Mon Aug 08, 2016 8:36 pm

nisiprius wrote:
selters wrote:If you want to invest in an equal weighted fund, then EUSA, iShares MSCI USA Equal Weighted ETF (https://www.ishares.com/us/products/239 ... ci-usa-etf) is the cheapest option right now, 0.15% ER. It follows the MSCI USA index, which contains the 600 largest stocks in the US, compared to the 500 for the S&P 500. For all practical purposes there is no difference between the S&P 500 og the MSCI USA indexes.
And, please, what is the logical argument, based on "equal weighting," that explains why you would want to assign 0.167% weights to 600 of the stocks in the market, and
zero weights to the other 3,400?
Why is that considered "equal" weighting?
The only logical argument for equal weighting is based purely on the empirical observation that it has worked (=outperformed the S&P 500) in the past. Actually it has outperformed US mid caps ever so slightly since 1994, too. $100 invested in mid caps invested in 1994 turned into $774. $100 invested in equal weighted large caps turned into $827.

I've been playing around with the end of day data search at https://www.msci.com/end-of-day-data-search and it says that equal weighting the total stock market in Canada has outperformed equal weighting for large caps in Canada since 1998. Oddly enough I could not find data for equal weighting of the US total stock market, only for large caps in the US.

I don't know why there only exists equal weight ETFs for US large caps and not for the total market. I'm guessing it's because of practical considerations and not because the strategy has not worked for the US total stock market in the past, but I may be mistaken.

The reason why MSCI uses 600 stocks (622 to be exact) is that they draw the line between large caps and small caps where the large caps comprise 85% of the US stock market. The next 14% (around 2000 stocks) are considered small caps. The final 1% (around 1000 stocks) are considered micro caps.

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Phineas J. Whoopee
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Re: Equal weight index funds

Post by Phineas J. Whoopee » Mon Aug 08, 2016 8:48 pm

lemonPepper wrote:...
One problem with equal weight is that some small companies would get more capital than they can handle efficiently. A company with revenues < $1bn would get too much inflow if people started doing equal weights.
...
I'm afraid not. Purchases and sales on the secondary market, which share-for-share must of necessity be the same, and which is the only place where equal weighting even has meaning, do not add to nor subtract from corporate balance sheets.

That efficiency word gets slung about a lot too, like corned beef hash, meaning neither one thing nor another.

PJW

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Phineas J. Whoopee
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Re: Equal weight index funds

Post by Phineas J. Whoopee » Mon Aug 08, 2016 8:58 pm

BogleInvestorLondon wrote:
Taylor Larimore wrote:
However, I also have an active fund and my guy has outperformed the market every single year for over 25 years.
BogleInvestorLondon:

Your fund must be the best performing fund in the world. Please give us the fund name and ticker symbol.

Thank you and best wishes.
Taylor
Invesco Perpetual High Income Fund: https://www.invescoperpetual.co.uk/port ... 1ebf0aRCRD

The guys name is Neil Woodford but he left that fund in late 2013 to start on his own. My mother invests in his new fund which has been outperforming. I am from the UK. The FTSE100 is a horrendously bad index and the last time I checked and posted about this here was in November 2015.

"since October 2012 till October 2015, her fund produced a returned 12.9% annually after costs.

My passive approach with VWRL over roughly the same period produced a return of roughly 8.67% before costs."

I used Vanguard All World as a benchmark since I invest in that. We could use the S&P too! I am also not cherry picking any dates.

My mother was lucky enough to invest 20+ years ago.
October 2015 - October 2012 = 3 years = 25 years?

PJW

BogleInvestorLondon
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Re: Equal weight index funds

Post by BogleInvestorLondon » Mon Aug 08, 2016 9:04 pm

Phineas J. Whoopee wrote:
BogleInvestorLondon wrote: October 2015 - October 2012 = 3 years = 25 years?

PJW

I said I was not cherry picking dates. That was just a quote from a previous thread. I could have looked at the S&P for the last 10 years like I just did actually, the fund beat it.

Northern Flicker
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Re: Equal weight index funds

Post by Northern Flicker » Mon Aug 08, 2016 9:07 pm

Equal weighting is really just a tilt implemented at the granularity of individual stocks. The smaller the stock, the more the stock is tilted relative to its cap weight.

The transaction cost of rebalancing is much lower if the tilt is done at the asset class granularity. The recent period in which equal weight beat a market cap index was a period when small caps beat large caps. There is nothing magic that happens when the tilt happens to line up to equal weight of each stock in the index. You could have achieved a similar outperformance during the period in question with a midcap and smallcap tilt, but at a much lower transaction cost.

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Phineas J. Whoopee
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Re: Equal weight index funds

Post by Phineas J. Whoopee » Mon Aug 08, 2016 9:07 pm

BogleInvestorLondon wrote:
Phineas J. Whoopee wrote:
BogleInvestorLondon wrote: October 2015 - October 2012 = 3 years = 25 years?

PJW

I said I was not cherry picking dates. That was just a quote from a previous thread. I could have looked at the S&P for the last 10 years like I just did actually, the fund beat it.
10 years = 25 years?
PJW

BogleInvestorLondon
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Re: Equal weight index funds

Post by BogleInvestorLondon » Mon Aug 08, 2016 9:16 pm

Phineas J. Whoopee wrote:10 years = 25 years?
PJW
No but this is:

http://www.thisismoney.co.uk/money/inve ... eturn.html

Trashed the S&P.

I will get statements if need be.

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Phineas J. Whoopee
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Re: Equal weight index funds

Post by Phineas J. Whoopee » Mon Aug 08, 2016 9:34 pm

BogleInvestorLondon wrote:...
I will get statements if need be.
We'll wait.
PJW

Solo Prosperity
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Re: Equal weight index funds

Post by Solo Prosperity » Mon Aug 08, 2016 10:40 pm

Phineas J. Whoopee wrote: We'll wait.
PJW
No need to [give me a hard time --paraphrased by triceratop]. This fund has done tremendously well. Was able to find it on the UK morning-star website going back to May 99:

Image

Thing has crushed the SP500 to be honest...It's not like every fund loses to the index, its just that in aggregate, active loses to passive because of fees AND picking the winning funds over a long period is very difficult so most don't bother.

Nice job on your pick BIL.

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Phineas J. Whoopee
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Re: Equal weight index funds

Post by Phineas J. Whoopee » Mon Aug 08, 2016 10:49 pm

QuietProsperity wrote:...
Was able to find it on the UK morning-star website going back to May 99:
...
2016 - 1999 = 17 years = 25 years?
PJW

Solo Prosperity
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Re: Equal weight index funds

Post by Solo Prosperity » Mon Aug 08, 2016 11:27 pm

Phineas J. Whoopee wrote:
QuietProsperity wrote:...
Was able to find it on the UK morning-star website going back to May 99:
...
2016 - 1999 = 17 years = 25 years?
PJW
I don't even own the fund but here you go anyways:

Image

I trust you can do the math on that one too.

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Phineas J. Whoopee
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Re: Equal weight index funds

Post by Phineas J. Whoopee » Mon Aug 08, 2016 11:37 pm

At least you(plural) are attempting to get your(plural) stories straight. Once you(plural) finish we can examine whether your(plural) wildly differing endpoints explain your(plural) contradictory claims. So far it's been impossible.
PJW

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triceratop
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Re: Equal weight index funds

Post by triceratop » Tue Aug 09, 2016 12:02 am

Let's try to keep the discussion family-friendly, civil, and respectful, even if in disagreement.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

Solo Prosperity
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Re: Equal weight index funds

Post by Solo Prosperity » Tue Aug 09, 2016 12:05 am

Phineas J. Whoopee wrote:At least you(plural) are attempting to get your(plural) stories straight. Once you(plural) finish we can examine whether your(plural) wildly differing endpoints explain your(plural) contradictory claims. So far it's been impossible.
PJW
I don't have a "story". I don't know BogleInvestorLondon. I don't invest in the fund, nor any active mutual fund.

You wouldn't give the guy a break & wanted 25 years as your sarcastic math equations kept inferring, so I found it.

Nothing else to it, but if you need some help, 2016 - 1988 = 28 years.

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Phineas J. Whoopee
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Re: Equal weight index funds

Post by Phineas J. Whoopee » Tue Aug 09, 2016 12:29 am

Thank you, triceratop. Like most victims of torture, the data will confess to any predetermined conclusion if start and end dates are chosen carefully enough. Neither three, nor sixteen, nor twenty eight, is the claimed twenty five.
PJW

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Re: Equal weight index funds

Post by Solo Prosperity » Tue Aug 09, 2016 12:47 am

Phineas J. Whoopee wrote:Thank you, triceratop. Like most victims of torture, the data will confess to any predetermined conclusion if start and end dates are chosen carefully enough. Neither three, nor sixteen, nor twenty eight, is the claimed twenty five.
PJW
Sigh. Clearly you enjoy agitating others. You know full well it would win over 25 years also. Best of luck to you in your future endeavours.

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triceratop
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Re: Equal weight index funds

Post by triceratop » Tue Aug 09, 2016 12:58 am

While it has true that the fund has had a remarkable performance, the claim was actually "my guy has outperformed the market every single year for over 25 years". That is, 1-year rolling returns must always have exceeded the market. A simple look at the growth chart shows that to be false.

I mention this only because I know PJW will if I don't. I also note that this is off topic to the point of this thread.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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JoMoney
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Re: Equal weight index funds

Post by JoMoney » Tue Aug 09, 2016 2:27 am

selters wrote:...
I don't know why there only exists equal weight ETFs for US large caps and not for the total market. I'm guessing it's because of practical considerations and not because the strategy has not worked for the US total stock market in the past, but I may be mistaken...
I had posted these in another thread for a different topic...
It's period dependent, and highly correlated to to the performance of small-caps... which shouldn't be surprising, because if you're equal weighting you're essentially reducing the largest market-cap stocks to add more to the lower market cap stocks.
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hariseldon
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Re: Equal weight index funds

Post by hariseldon » Tue Aug 09, 2016 8:05 am

The Perpetual fund mentioned has done well, but over the 10 years prior to 30/6/2016 (date on latest fact sheet ) it has underperformed the S&P500 and perhaps more relevant the FTSE250 ( Uk Index of small and mid cap stocks which is a fair match for a large part of the portfolio.

The nature of an index fund is that it will not outperform every fund over every period but it will do pretty well and over an extended period of time will beat most of the competition.

The nature of an equally weighted fund is interesting, does it start equally weighted and is never rebalanced as in theory a total market fund would be left unchanged except for corporate activity and new issues or is it rebalanced ? The rebalancing is by its nature an active process and the frequency will significantly affect the outcome.

I always like to think of the analogy ( not my own..) of having a % share in my high school classmates lifetime earnings. If such a 'portfolio' existed and started out equally weighted and one had an alternate version that rebalanced annually, I'd rather take the un rebalanced version on the basis that if one of my classmates was to be an exceptional high earner I'd rather ride that to the end of their career then trade it down continuously to the average wage.

In the same way a market cap portfolio will capture the few companies that do exceptionally well and let the winners run. Studies have shown that the majority of companies do not perform well.
http://awealthofcommonsense.com/2016/05 ... -strategy/

BogleInvestorLondon
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Re: Equal weight index funds

Post by BogleInvestorLondon » Tue Aug 09, 2016 8:27 am

QuietProsperity wrote:I don't have a "story". I don't know BogleInvestorLondon. I don't invest in the fund, nor any active mutual fund.

You wouldn't give the guy a break & wanted 25 years as your sarcastic math equations kept inferring, so I found it.

Nothing else to it, but if you need some help, 2016 - 1988 = 28 years.
Don't feed the trolls. He feeds off your responses.

Just look at the way he acts, that should be enough said. Let us keep this forum healthy.

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LadyGeek
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Re: Equal weight index funds

Post by LadyGeek » Tue Aug 09, 2016 9:32 pm

Please stay on-topic, which is about equal weighted funds.
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Re: Equal weight index funds

Post by LadyGeek » Tue Aug 09, 2016 9:32 pm

The wiki has related background info: Equal weighted indices
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Re: Equal weight index funds

Post by Mel Lindauer » Wed Aug 10, 2016 11:55 am

This thread is locked for Moderater review as having run its course. Find additional info in the wiki link provided by LadyGeek.
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Re: Equal weight index funds

Post by prudent » Wed Aug 10, 2016 12:32 pm

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