The start of a new cycle?
10 March 2021
Equally Weighted vs Market-Cap Weighted indices
The charts on this page compare classical Market-Cap Weighted index (MCW) with the their Equal Weighted (EW) counterpart. We reference the S&P500 given its broader market representativity and available historic data.
- EW index invests equally across its constituents and is frequently rebalanced to maintain an equal weigth, while MCW invests according to market capitalization.
- As relative performances evolve, MCW indices tend to become concentrated.Currently, the top 1% of S&P500 constituents represents 20% of its weightings.
The economic and business cycles
Comparing EW and MCW may help identify changes in cycles. As companies or sectors outperform, they increase their relative weight and drive the MCW index.
- MCW tends to outperform EW close to the end of the cycle, as a few winners drive its performance. As the cycle moves on, new players start to outperform, but their weight is relatively higher in EW indices, which thus better capture this change.
- Historically and over the long-term, the EW index outperforms the MCW index.
- At AtonRa, the median market cap of our holdings is $15bn and are thus rather positioned to capture challengers’ performances.
Is the trend changing?
For the past 6 years MCW outperformed EW and even accelerated slightly before the Covid crisis. Since September 2020 however, EW started to outperform.
- Does it suggest we are entering a new cycle?
- Are new players dethroning the FAANGs?
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Disclaimer
This report has been produced by the organizational unit responsible for investment research (Research unit) of atonra Partners and sent to you by the company sales representatives.
As an internationally active company, atonra Partners SA may be subject to a number of provisions in drawing up and distributing its investment research documents. These regulations include the Directives on the Independence of Financial Research issued by the Swiss Bankers Association. Although atonra Partners SA believes that the information provided in this document is based on reliable sources, it cannot assume responsibility for the quality, correctness, timeliness or completeness of the information contained in this report.
The information contained in these publications is exclusively intended for a client base consisting of professionals or qualified investors. It is sent to you by way of information and cannot be divulged to a third party without the prior consent of atonra Partners. While all reasonable effort has been made to ensure that the information contained is not untrue or misleading at the time of publication, no representation is made as to its accuracy or completeness and it should not be relied upon as such.
Past performance is not indicative or a guarantee of future results. Investment losses may occur, and investors could lose some or all of their investment. Any indices cited herein are provided only as examples of general market performance and no index is directly comparable to the past or future performance of the Certificate.
It should not be assumed that the Certificate will invest in any specific securities that comprise any index, nor should it be understood to mean that there is a correlation between the Certificate’s returns and any index returns.
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