Why Do Equally Weighted Portfolios Beat Value-Weighted Ones?

Journal of Portfolio Management, 49 (5), 167–187

26 Pages Posted: 22 Nov 2022 Last revised: 26 Apr 2023

See all articles by Alexander Swade

Alexander Swade

Lancaster University - Department of Accounting and Finance; Robeco Quantitative Investments

Sandra Nolte (Lechner)

Lancaster University Management School

Mark B. Shackleton

Lancaster University - Department of Accounting and Finance

Harald Lohre

Robeco Quantitative Investments; Lancaster University Management School

Date Written: November 18, 2022

Abstract

Equal-weighted (EW) portfolios have outperformed their value-weighted (VW) counterparts over multiple decades in various investment universes. This paper investigates the long-term evidence or the EW–VW return spread in a broad U.S. 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. We also document a pronounced seasonality effect in EW investing that would see outsized returns in January. We revisit these findings in the more investible universe of S&P500 stocks and discuss how to best harvest the embedded factor premia.

Keywords: Equal-weighting, factor models, size, value, momentum

JEL Classification: G11, G14

Suggested Citation

Swade, Alexander and Nolte (Lechner), Sandra and Shackleton, Mark B. and Lohre, Harald, Why Do Equally Weighted Portfolios Beat Value-Weighted Ones? (November 18, 2022). Journal of Portfolio Management, 49 (5), 167–187, Available at SSRN: https://ssrn.com/abstract=4280394

Alexander Swade (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3011 AG
Netherlands

Sandra Nolte (Lechner)

Lancaster University Management School ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Mark B. Shackleton

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
44 1524 594131 (Phone)
44 1524 847321 (Fax)

Harald Lohre

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3011 AG
Netherlands

Lancaster University Management School

Bailrigg
Lancaster LA1 4YX
United Kingdom

HOME PAGE: http://www.lancaster.ac.uk/lums/people/harald-lohre

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