Why do equally weighted portfolios beat value-weighted ones?

Swade, Alexander and Nolte, Sandra and Shackleton, Mark and Lohre, Harald (2023) Why do equally weighted portfolios beat value-weighted ones? Journal of Portfolio Management, 49 (5). pp. 167-187. ISSN 0095-4918

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Equal-weighted (EW) portfolios have outperformed their value-weighted (VW) counterparts over multiple decades in various investment universes. This article investigates the long-term evidence for the EW–VW return spread in a broad US equity universe across multiple factor models. Unsurprisingly, EW investing comes with a highly significant positive size factor exposure. Given its acyclic rebalancing character, EW investing is also found to benefit from short-term reversal effects while suffering from negative momentum exposure. The authors also document a pronounced seasonality effect in EW investing that would see outsized returns in January. They revisit these findings in the more investable universe of S&P 500 stocks and discuss how to best harvest the embedded factor premiums.

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Journal Article
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Journal of Portfolio Management
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Deposited On:
16 Jun 2023 08:30
Last Modified:
20 Sep 2023 02:00