With beta becoming the new alpha, it seems apt that index weighting schemes are again coming into focus. Despite Rob Arnott and others pitching alternatively weighted indexes as effectively better beta, they’ve always struck me as an effort to try to squeeze some alpha in over the market cap … more akin to enhanced indexing than “better beta,” and certainly some bet against where the market holds its money.
Now, to some extent, the numbers are in. Alternative weighting strategies have been on the market for a few years now, and they’ve been stress-tested in some very stressful environments. We thought it was time to take a good, hard look at how they’ve fared. That’s all the more important considering that many more alternative strategies are coming down the pike, including new equal-weighted ETFs providing exposure to all your favorite indexes. In this issue, you’ll get some insight into how these types of funds and indexes work.
Right on point is a survey from Noël Amenc, Felix Goltz and Lionel Martellini firmly planting the flag that the alternatively weighted indexes outperform, in many respects, their cap-weighted counterparts. There is plenty of data in the piece for you to peruse and ponder.
Pradeep Velvadapu weighs in with a piece looking at equal sector weighting … a strategy that has particularly fared well on the bust side of boom/bust bubbles like late ’90s tech and 2008 financials ... both extremely interesting case study time periods for alternatively weighted indexes. Compare, contrast, reflect.
Next up is an old-school roundtable from some of the leading players on the alternative and cap side of the weighting equation, including the thoughts of Gus Sauter, Rob Arnott, Scott Ebner, Srikant Dash, Frank Nielsen and Chris Woods. The hardcore JoI fans out there will LOVE this Q&A.
Rounding out the issue is a look at “core vs. blend” portfolios by the always engaging David Blanchett, a great piece on the challenge of benchmarking microfinance by Peter Wall, David Blitzer making the assertion that if you’re in the markets, you’re a sorter or a digger, and Lara Crigger with a back-page jolly that sort of pans … me.
Happy investing! These are exciting times around here and in our industry.