Rip Van Winkle Indexing

摘要

Here's another piece of research that debunks the efficacy of the link between current price and market-capitalization weighting in stock selection. It's from Research Affiliates, a leading proponent of smart beta indexing. A hypothetical index portfolio based on stale, 20-year-old prices actually outperforms a portfolio using current prices of the largest market-cap-weighted stocks. This "Rip Van Winkle" index portfolio outperforms the cap-weighted index by 1.8% each year over more than half a century. This is a controlled experiment, not an investing strategy, but the exercise provides a fresh perspective on the impact of prices on cap-weighted approaches and finds that such approaches come up short.