AgPa #70: Equal vs. Market Cap Weights
Why Do Equally Weighted Portfolios Beat Value-Weighted Ones? (2022)
Alexander Swade, Sandra Nolte, Mark Shackleton, Harald Lohre
The Journal of Portfolio Management 49 (5), URL/SSRN
This week’s AGNOSTIC Paper examines one of the most common ideas of portfolio construction. Equal weighting. At least on paper, equal weighted strategies often outperform market cap weights and sometimes even more sophisticated optimizations. In a very simple, yet somehow brilliant analysis, this week’s authors examine where this historical outperformance comes from…
- EW portfolios outperformed VW ones in the US market
- EW bets on Size, Value, and against Momentum, Quality, and Low-Risk
- The EW-VW spread is an imperfect, but cheap and simple proxy for the size effect