Thursday, August 11, 2016

Equal Weight Versus Market Cap

Here is a chart depicting the SPY(cap weighted) versus the RSP(equal weight) ETF's for the S&P 500 during August 2006 through August 2016. For those that are unaware these are two passive index ETF's.

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For the last 10 years equal weight RSP(black line) has outperformed it's more well known benchmark SPY(blue line). However that gap has started to close recently to almost nothing. In fact this last year the two are almost perfectly correlated with almost no difference in performance.

 Not sure what it means exactly other than more people have been flooding into large caps seeking safety. That would give an advantage to cap-weighted ETF's such as SPY.

It will be fun to see what the next ten years bring. 

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