Comments on: Total Market Index vs. Sector Investing – Part 2

By: Penny Stocks To Watch

Penny Stocks To Watch — Thu, 03 Sep 2009 20:02:06 +0000

Interesting, I have never thought about TMI trading in this way.

By: Index Mutual Funds vx. Exchange-Traded Funds—� AllFinancialMatters

Index Mutual Funds vx. Exchange-Traded Funds—� AllFinancialMatters — Wed, 12 Dec 2007 20:10:29 +0000

[...] To Lily’s excellent analysis, I might add that one thing I like about ETFs is that they can be sliced and diced (if slicing and dicing is your cup of tea) in ways that mutual funds cannot (read this post to see what I’m talking about), which can allow an investor to create customized portfolios. [...]

By: Weekly Dividend Investing Roundup - December 7, 2007 Edition » The Dividend Guy Blog

Fri, 07 Dec 2007 15:25:47 +0000

[...] JLP at AllFinancialMatters has a good multiple part post about Total Market Indexes versus Sector Investing. It is something that I have not thought of before in my own portfolio, at least from an index perspective. [...]

By: Pierluigi Rotundo

Pierluigi Rotundo — Mon, 03 Dec 2007 20:58:19 +0000

Nice analysis! A really great work!

Cheers,
Pierluigi Rotundo

By: Dylan

Dylan — Mon, 03 Dec 2007 17:33:14 +0000

Jon – A cap-weighted index fund does not buy shares as prices go up and sell as they go down. If the price of a company goes up, so goes it’s capitalization, and that’s why the relative weight increases, not because more share are purchased. Also, equal weighting has not out performed in recent years do to rebalancing. It has out performed because it happened to be overweight in out performing sectors and underweight the under performing sectors relative to the cap-weighted market. There have been and will continue to be periods of time that equal weighting will under perform.

By: Jon

Jon — Mon, 03 Dec 2007 14:34:06 +0000

Another point to keep in mind is the different buy/sell behavior of equal-weight indexes versus market-cap indexes. In an equal-weight scenario, shares are sold when they go up and bought when they fall. In a market-cap scenario, they are bought when they go up and sold when they fall, not the ideal strategy! (Although they may benefit from momentum if your rebalancing period is fairly short.)

Anyway, another good example to look at is the equal-weight S&P 500 index, RSP, versus the normal version, SPY. Looking back to 2003 when it started, it has significantly outperformed the S&P 500 due to the buy-low sell-high strategy: http://finance.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1196715600000&chddm=453560&cmpto=AMEX:SPY&q=AMEX:RSP

By: Economics Topics News » Blog Archive » Total Market Index vs. Sector Investing - Part 2

Mon, 03 Dec 2007 07:53:20 +0000

[...] Total Market Index vs. Sector Investing – Part 2By JLPI assumed that the portfolio was housed at FOLIOfn under their basic plan, which costs $199 per year but gives account holders “free” trades each month. I did not factor in a transaction cost for trading IYY since it would only be …AllFinancialMatters – http://allfinancialmatters.com [...]

By: Andy

Andy — Mon, 03 Dec 2007 06:12:34 +0000

It seems that the difference in performance is likely because your “equal weighted” portfolio has more invested in small and/or value stocks.