The Weekly Bottom Line - July 5, 2013

Canada

  • WTI prices topped US$100 per barrel, narrowing the Brent-WTI spread to less than US$5 per barrel for the first time since January 2011.
  • Canada’s international trade deficit narrowed in May, as a 1.6% drop in exports was more than offset by a 3.2% decline in imports.
  • Employment was unchanged in June, although the underlying details were soft; 32,000 full-time positions were shed, offset by similar gains in part-time positions. The unemployment rate held steady at 7.1%.

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10-Years Later: Where in The World is Equal-Weight Indexing Now?

Summary:

  • The S&P 500® Equal Weight Index (EWI) was introduced in January 2003, pioneering the subsequent development of non-capitalization weighted indices, which have become the dominant theme of index innovation for the past decade.
  • Equal weighing is factor indifferent. Because it randomizes factor mispricing, it is an attractive option for proponents of the theory that the market is inefficient and, at times, misprices factors.
  • Equal weighting represents a choice of portfolio construction in which the constituent weightings are not correlated with their expected returns. Consequently, an equal-weight index can serve as the performance benchmark for all alternative-weighted indices.
  • The S&P Equal Weight Indices have different properties from their underlying headline indices, including a lower concentration of individual stocks and slower-changing sector exposures.
  • Historically, the S&P Equal Weight Indices have outperformed their market capitalization (market cap) weighted equivalents over longer time periods. The level of outperformance has also varied considerably under different market conditions.
  • The outperformance of the S&P Equal Weight Indices results from differing weighting and rebalancing processes. In terms of risk factor exposure, a complex and dynamic combination of size and style risk factors have contributed to return differences. It may be difficult to replicate the equal weight index return outcomes through a simplistic combination of style and sector indices.
  • Equal weighting has also demonstrated long-term outperformance internationally.
  • Criticism of equal weight indices has centered on increased turnover and capacity constraints relative to market-cap weighted indices. While true in abstract theory, neither is a serious hurdle in practice.

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Market Indices, Asset & Risk Management Numbers: June 2013

Great summary of investment performance - monthly, quarter, Year to date and 1-year stats. Updated performance data: stocks, bonds, mixed portfolios, etc.

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