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

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AgPa #58: International Diversification – Doing the Right Thing is Hard Sometimes

International Diversification—Still Not Crazy after All These Years (2023)
Cliff Asness, Antti Ilmanen, Dan Villalon
The Journal of Portfolio Management 49(6), 9-18, URL/AQR

In the last post (AgPa #57), we have already seen that international diversification is a powerful protection against the higher-than-expected risk of losing real wealth with stocks over the long term. By coincide, three of the OGs from AQR Capital Management also just released an article about the Fors and Againsts of international diversification. Unsurprisingly, I picked that one for this week’s AGNOSTIC Paper…

  • For: Not everyone can invest in the best-performing market
  • Against: Everything crashes together
  • For: Historic returns don’t show changes in valuation
  • For: Valuation levels should eventually matter
  • For: International diversification provides opportunities for active investors

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AgPa #53: Investing in Interesting Times

Investing in Interesting Times (2023)
Annti Ilmanen
The Journal of Portfolio Management Multi-Asset Special Issue 2023, URL/AQR

Almost exactly one year ago, Antti Ilmanen (Partner at AQR Capital Management) released his outstanding book Investing Amid Low Expected Returns: Making the Most When Markets Offer the Least. The book is (in my opinion) a must-read and the timing couldn’t have been better. Many of the key themes began to materialize in 2022. Given how much markets have changed since then, Antti released a few updates for six of his major ideas in this week’s AGNOSTIC Paper.

  • The low expected return challenge
  • Investors’ response to low expected returns – private markets
  • What happened in 2022 and where we stand now
  • Long-only versus long-short strategies
  • Downside protection via trend-following

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