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Page 7 of 7
Conclusions
Often, the most powerful investment ideas are simple. The simple concept of equal weighted indexing has gained billions of dollars in assets in last five years. While the headline cause of asset flows has been outperformance over market capitalization indices, sophisticated investors have realized that equal weighting creates a different set of risk factor exposures versus market capitalization weighting that seem to work over the long term. Further, the concept randomizes factor mispricings in the market. As trading costs shrink globally, and as investors realize that turnover of equal weighted indexing is only about a fifth of active managers, we expect the concept to gain ground. Equal weighting has been used in fixed income indexes to a certain degree, and given our results of it working in international markets, we would not be surprised to see interest in equal weighted international products.
The opinions and forecasts expressed are those of Srikant Dash and Keith Loggie, Standard & Poors' researchers, as of April 2008, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or strategy.
Disclaimer
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