Market cap weighting vs other methods
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Re: Market cap weighting vs other methods
RSP Guggenheim Equal Weight sounds good to me. I think I can get it commission-free.
Re: Market cap weighting vs other methods
FYI, here is the document which governs the Research Affiliates / FTSE Russell Funamental Indices:
http://www.ftse.com/products/downloads/ ... es.pdf?969
Page 15, is where it all starts:
"4.4 The review of the FTSE RAFI Index Series and the calculation of the fundamental weighting of a company are carried out using the following factors as found in a company’s annual returns:
A. Sales = company sales averaged over the prior five years
B. Cash Flow = company cash flow averaged over the prior five years
C. Book Value = company book value at the review date
D. Dividends = total dividend distributions averaged over the last five years"
http://www.ftse.com/products/downloads/ ... es.pdf?969
Page 15, is where it all starts:
"4.4 The review of the FTSE RAFI Index Series and the calculation of the fundamental weighting of a company are carried out using the following factors as found in a company’s annual returns:
A. Sales = company sales averaged over the prior five years
B. Cash Flow = company cash flow averaged over the prior five years
C. Book Value = company book value at the review date
D. Dividends = total dividend distributions averaged over the last five years"
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MachineGhost
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- Joined: Sat Nov 12, 2011 9:31 am
Re: Market cap weighting vs other methods
So its just growth and value tilting. You have to decide if this is worth the extra fees over the other alternatives. Generally, factor composites work better than a single factor. So that's how I would view this. Do they use the best growth or value factors? Not from the looks of it.ochotona wrote:A. Sales = company sales averaged over the prior five years
B. Cash Flow = company cash flow averaged over the prior five years
C. Book Value = company book value at the review date
D. Dividends = total dividend distributions averaged over the last five years"
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Re: Market cap weighting vs other methods
http://m.wealthmanagement.com/etfs/when ... akes-sense
One of the better comparisons I've seen. It is fairly easy to get most of the best of both with simple Mo between the two or if you are hardcore agnostic, just buy 50% of each and you get the average. Simple averaging is a great tool if you can't decide between two options. You won't get the best but you won't get the worst either.
One of the better comparisons I've seen. It is fairly easy to get most of the best of both with simple Mo between the two or if you are hardcore agnostic, just buy 50% of each and you get the average. Simple averaging is a great tool if you can't decide between two options. You won't get the best but you won't get the worst either.
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MachineGhost
- Executive Member
- Posts: 10054
- Joined: Sat Nov 12, 2011 9:31 am
Re: Market cap weighting vs other methods
That was the impetus for the Equal Weight Market Cap approach I came up with last year. But what bothered me about that was the risk was not equalized among them because small and micro caps are definitely way more riskier than mega caps. Stupid me didn't realize until just this very minute (that I can recall) that the way to go is to risk paritize the market caps. Doh!Kbg wrote:http://m.wealthmanagement.com/etfs/when ... akes-sense
One of the better comparisons I've seen. It is fairly easy to get most of the best of both with simple Mo between the two or if you are hardcore agnostic, just buy 50% of each and you get the average. Simple averaging is a great tool if you can't decide between two options. You won't get the best but you won't get the worst either.
They didn't prove it but maybe it is the sector overweighting that matters, not the equal weighting.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!