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Author: klouche Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 254109  
Subject: Equal Weighting for All Date: 2/20/2013 10:04 AM
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A blend of equal weighted industries (actually Sector is a better term) from Sept. 1997 to date produces a CAGR of 9.9% vs. SPY's 4.7%.
This means owning all 7000 stocks in GTR1, stratified by one of 12 sectors. This prevents over representation of a sector just because it has more companies in the sector than average.

To conduct this test use URL:

http://gtr1.backtest.org/2011/blend.cgi

Then for each code use:

s::int(linear(0.01,incd.s))et1

through

s::int(linear(0.01,incd.s))et12

Representing:

01-Basic Materials
02-Capital Goods
03-Conglomerates
04-Consumer Cyclical
05-Consumer Non-Cyclical
06-Energy
07-Financial
08-Health Care
09-Services
10-Technology
11-Transportation
12-Utilities

Run with null values elsewhere as GTR1 inserts defaults.

Result:


Avg Min Max SD
CAGR: 9.9 9.7 10.1 0.1
TR: 327.6 313.2 338.2 7.1
GSD(20): 25.0 24.9 25.1 0.0
DD(20): 17.0 16.8 17.1 0.1
MDD: (63.4) (64.0) (62.4) 0.5
UI(20): 15.3 15.0 15.6 0.2
Sharpe(20): 0.4 0.4 0.4 0.0
Beta(20): 1.1 1.1 1.1 0.0
TI(20): 8.6 8.3 8.7 0.1
AT: 0.8 0.8 0.8 0.0


Biggest drawback is the drawdown, however by the time it occured you are far ahead of SPY.

For passive investing, not bad. Some of the excess is due to continuous rebalancing which is not practical.

Rydex as nine equal weighted sector funds now.

KL
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Author: MarginOfBuffett Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 241764 of 254109
Subject: Re: Equal Weighting for All Date: 2/20/2013 11:00 PM
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Rydex as nine equal weighted sector funds now.

Why haven't they made a total market equal-weight ETF? Is it just not practical?

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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 241765 of 254109
Subject: Re: Equal Weighting for All Date: 2/21/2013 3:39 AM
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Why haven't they made a total market equal-weight ETF? Is it just not practical?


EWRI.

Practical, yes. Liquid, no. Not yet, anyway.

Jim

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Author: klouche Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 241768 of 254109
Subject: Re: Equal Weighting for All Date: 2/21/2013 9:08 AM
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EWRI.

Practical, yes. Liquid, no. Not yet, anyway.


Not the same thing.

There's no assurance in EWRI that it equal weights the 12 AAII (or 9 RYDEX or 10 S&P) sectors equally. Just equalizing all caps could mean that one of the sectors, say technology; is overweighted becuase there are so many startups. While the number of utility sector companies remain constant. The technology weight grows out of proportion.

The test I did in GTR1 compensates for this.

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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 241770 of 254109
Subject: Re: Equal Weighting for All Date: 2/21/2013 9:49 AM
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There's no assurance in EWRI that it equal weights the 12 AAII (or 9 RYDEX or 10 S&P) sectors equally

It does so by construction, using the Russell sector boundaries.
Each sector gets an equal weight, then companies within each sector get an equal weight.
It's surprisingly similar to your test.

The main difference is that it's limited to the Russell 1000 list, the 1000 largest US firms.
It appears there is a Russell 2000 version too, so 2 parts EWRS and
1 part EWRI would give you equal weight to all sectors, then close to
equal weight of companies, for the 3000 biggest US firms by market cap.

Personally I'd plump for just the sectors that are the best in terms
of long run average return and long run average ROE.
One baby step away from dumb indexing towards sensibly stacking the deck.

Jim

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Author: klouche Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 241773 of 254109
Subject: Re: Equal Weighting for All Date: 2/21/2013 10:49 AM
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Personally I'd plump for just the sectors that are the best in terms
of long run average return and long run average ROE.
One baby step away from dumb indexing towards sensibly stacking the deck.


That is an approach discussed in the seven secrets book, but he used sector funds that were cap weighted.

Since it is not practical to buy thousands of stocks as an individual, one could buy say 10 per each of 10 sectors. To mimic the approach these 10 would have to be selected randomly. Back to monkeys and darts!

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Author: lsmr409 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 241781 of 254109
Subject: Re: Equal Weighting for All Date: 2/21/2013 1:14 PM
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One baby step away from dumb indexing towards sensibly stacking the deck.

Jim (or others),

Are you familiar with the ETF 'FLAG'? Just wondered if you had any thoughts. This one may be a bit more than a baby step away from dumb indexing, but could be stacking the deck somewhat?

http://finance.yahoo.com/q/pr?s=FLAG+Profile

I first read about it here:

http://www.dallasnews.com/business/columnists/will-deener/20...

Todd

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Author: elann Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 241795 of 254109
Subject: Re: Equal Weighting for All Date: 2/21/2013 8:57 PM
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EWRI.

Practical, yes. Liquid, no. Not yet, anyway.


I just looked at the quote for EWRI. The daily volume is small. However, the bid and ask sizes are very large. 9000 shares bid, 3000 shares ask. So somebody (the ETF sponsor?) is providing plenty of liquidity. Even though it's thinly traded, it should be pretty easy to trade with a 1% or so bid/ask spread.

Elan

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Author: klouche Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 241852 of 254109
Subject: Re: Equal Weighting for All Date: 2/24/2013 7:53 PM
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Update on the theme. Using GTR1, this time choosing the mid caps, that is capitalization 1000th to 501st, then selecting the twelve industries the results improve.



Avg Min Max SD
CAGR: 10.44 10.21 10.71 0.14
TR: 360.6 345.9 378.1 9.17
GSD(20): 22.16 21.88 22.36 0.16
DD(20): 15.62 15.30 15.81 0.17
MDD: (56.7) (57.4) (55.3) 0.53
UI(20): 13.56 13.19 13.92 0.20
Sh(20): 0.48 0.47 0.50 0.01
Be(20): 1.08 1.07 1.09 0.01
TI(20): 8.80 8.57 9.08 0.14
AT: 1.66 1.62 1.68 0.01


Stable accross 20 start dates and more than double SPY.

By year:


Total Return for Year Ending:
19971231 7.0
19981231 5.9
19991231 13.5
20001229 14.0
20011231 (2.6)
20021231 (15.5)
20031231 45.5
20041231 24.8
20051230 16.6
20061229 19.1
20071231 9.4
20081231 (37.8)
20091231 39.9
20101231 27.9
20111230 (0.5)
20121231 17.1
20130221 7.5


BRK-B (Warren's stock) is only getting 8.3% over the period.

1:MktCap:tn1000:MktCap:bn500:Industry:et1:MktCap:product(sprc(0,1),csoq1d.s):Industry:int(linear(0.01,incd.s))::2:MktCap:tn1000:MktCap:bn500:Industry:et2:MktCap:product(sprc(0,1),csoq1d.s):Industry:int(linear(0.01,incd.s))::3:MktCap:tn1000:MktCap:bn500:Industry:et3:MktCap:product(sprc(0,1),csoq1d.s):Industry:int(linear(0.01,incd.s))::4:MktCap:tn1000:MktCap:bn500:Industry:et4:MktCap:product(sprc(0,1),csoq1d.s):Industry:int(linear(0.01,incd.s))::5:MktCap:tn1000:MktCap:bn500:Industry:et5:MktCap:product(sprc(0,1),csoq1d.s):Industry:int(linear(0.01,incd.s))::6:MktCap:tn1000:MktCap:bn500:Industry:et6:MktCap:product(sprc(0,1),csoq1d.s):Industry:int(linear(0.01,incd.s))::7:MktCap:tn1000:MktCap:bn500:Industry:et7:MktCap:product(sprc(0,1),csoq1d.s):Industry:int(linear(0.01,incd.s))::8:MktCap:tn1000:MktCap:bn500:Industry:et8:MktCap:product(sprc(0,1),csoq1d.s):Industry:int(linear(0.01,incd.s))::9:MktCap:tn1000:MktCap:bn500:Industry:et9:MktCap:product(sprc(0,1),csoq1d.s):Industry:int(linear(0.01,incd.s))::10:MktCap:tn1000:MktCap:bn500:Industry:et10:MktCap:product(sprc(0,1),csoq1d.s):Industry:int(linear(0.01,incd.s))::11:MktCap:tn1000:MktCap:bn500:Industry:et11:MktCap:product(sprc(0,1),csoq1d.s):Industry:int(linear(0.01,incd.s))::12:MktCap:tn1000:MktCap:bn500:Industry:et12:MktCap:product(sprc(0,1),csoq1d.s):Industry:int(linear(0.01,incd.s))

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