For TraderPaul from Carl Swenlin
Posted 28 December 2006 - 11:08 AM
The question was:
"What did the Equal Weight Sectors do in down markets? You showed only up markets in this article <http://www.tradingmarkets.com/.site/stocks/commentary/chartspotlight/New-Equal-Weight-Sector-Spider-ETFs.cfm> ."
Carl writes back"
The historical data (back to 1999) is also available on StockCharts.com, so you can see for yourself. Generally, equal weight indexes do better in all kinds of markets.
Posted 28 December 2006 - 11:39 AM
Posted 28 December 2006 - 12:44 PM
Cap-weighted indexes give more weight to large-cap stocks. With equal weighted indexes, each stock gets a single vote in the outcome. So equally weighted indexes have a small-cap bias compared to capitalization-weighted indexes.
Broadly speaking, when small caps are outperforming, equally weighted indexes perform better than capitalization weighted indexes.
Good point but also consider this,
If you believe the markets are not perfectly efficient (which you probably do if you are here). Then by definition with a Cap weighted index you will own more of the securities which are overpriced and less of the securities which are underpriced by the marketplace.
Posted 28 December 2006 - 01:50 PM
Posted 28 December 2006 - 01:57 PM