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Do Equal Weight ETFs Beat Cap Weight Counterparts?

July 30, 2020 • Posted in Size Effect

“Stock Size and Excess Stock Portfolio Growth” finds that an equal-weighted portfolio of the (each day) 1,000 largest U.S. stocks beats its market capitalization-weighted counterpart by about 2% per year. However, the underlying research does not account for portfolio reformation/rebalancing costs and may not be representative of other stock universes. Do exchange-traded funds (ETF) that implement equal weight for various U.S. stock indexes confirm findings? To investigate, we consider five equal-weighted ETFs, three alive and two dead:

We calculate monthly return statistics, along with compound annual growth rates (CAGR) and maximum drawdowns (MaxDD). Using monthly dividend-adjusted prices for the 10 ETFs as available (limited by equal-weighted funds) through June 2020, we find that: (more…)

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