Author Topic: 30-Year Passive Management Lockup  (Read 3805 times)

Steven B

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Re: 30-Year Passive Management Lockup
« Reply #10 on: November 10, 2016, 12:19:41 PM »
How much of the emerging market capture would the total world index provide? Would a equal-weighted type international index solve some of issues chrispy mentioned before? I'll definitely look around though. Speaking of which, would an equal weighted option for just  the S&P make sense given the dislocation of valuations even in the S&P itself?

Thanks guys it's much appreciated.


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Re: 30-Year Passive Management Lockup
« Reply #11 on: November 10, 2016, 12:35:17 PM »
In the past I've been for equal-weighted indexes. Nowadays, I'm pretty much in the market-cap-weighted camp.

IMO the assertion that equal-weighted indexes have better valuation curve than market-cap-weighted indexes is not necessarily true. Tough to prove one way or the other I guess.

In the new winner-takes-all world within many (tech) industries, it's possibly a mistake to equal-weight allocate to smaller losing companies.

Equal-weighted indexes need constant rebalancing which may not be tax efficient if you care about taxes.

Equal-weighted indexes have a problem as soon as they cross the size that requires them to hold more than ~10% of the smallest component. This might not happen, but if it does, they usually can't equal-weight anymore. There also might be issues with liquidity during rebalancing for smaller components.

However, in general you might not lose (or gain) much by going equal weighted.
"Before you can be rich, you must be poor." - Nef Anyo
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Re: 30-Year Passive Management Lockup
« Reply #12 on: November 10, 2016, 04:30:12 PM »
Total World is just a global market weight (float / liquidity adjusted like most big indices of course) index.


it will own EM in proportion to how the global capital markets value EM equity.

There is no magic.  it is a global market weight index.

All other naval gazing about equal weight, small cap tilt, fundamental indexing, etc etc etc etc may indeed add (or subtract value), but it seems the answer here is obviously KISS.

Everyone (on average) will now say "US is best, do that, blah blah blah" but guess what, the US market has RAGED higher vs international components over the last 5-6 years... so most folks would say that because of the recency effect of those who believe that being proven right.

5-6 years ago, it was quite fashionable (on this board and others) to overweight international (and esp EM), and to overemphasis the diversification and supposed currency benefits of non-US.  Those folks have been kicked in the teeth with 10 year Developed market equity returns shocking right around 0%.

I think it's all likely to rotate back and forth several times in the next 30 years.  To me, you either go with what you *know* captures indexing benefits (low costs, low turnover, low tax, etc) which is MOST captured by market weighting.  Or, you try to outsmart the market by calling certain stocks, sectors, fundamentals, cap sizes, etc to outperform.

There is nothing really in between.

Side note, I think the fundamental / equal weight / small cap crowd has crowded out the historical advantage here for most countries.  What DFA does in the beginning, fools with a Scottrade account and some RAFI index ETFs do in the end.  I think non-market weights personally are set to do poorly and have their valuations adjusted by toward more historical norms... they don't magically outperform... they have historically been cheap, and that is no longer true.

But even if I didn't believe that above, I'd say "buy VT and forget it".

It's what I tell prospective clients to do if they don't want to hire me.  It's one and done.  Wake up 50 years from now and you will get equity returns minus Vanguard's tiny rake (which will go down over time as % of AUM).

Pick your fav ideas here and do a poll, would be interesting!  I'll vote twice. ;-)
Ben Hacker
Beaverton, Oregon - USA