Index Investing Enhanced


The best parts of index-based investing are not exclusive to indexing. Low-fees, diversification and avoiding untimely switching can all be achieved without an index.

Transcript:

The best parts of index-based investing are not exclusive to indexing. Low-fees, diversification and avoiding untimely switching can all be achieved without an index.

Investors have long tapped index-linked funds for diversification. Index funds may not be as diversified as they seem. The S&P 500 as an example has about 21% of its exposure in just 10 stocks. It has over 1/4th of its exposure in the Information Technology sector and about 2/3rds of its exposure in just 4 sectors.

I believe unintended concentrations are risks that should be avoided. Market Cap weighting by its nature becomes more concentrated as stocks become overvalued and sectors become popular.

Research suggests that there are drivers to return. Factors like financially healthy firms, stocks that are inexpensive, smaller companies and trending stocks. At WealthFactor through a rules-based process we seek consistent exposure to companies that exhibit these factors. In an attempt to avoid the concentration issues inherent in market cap weighting we use equal weighting when constructing portfolios.

Risk-adjusted returns may be improved by an investment strategy that takes the best parts of index-based investing and blends that with fundamental factors within a framework that avoids concentration.

Thanks for listening.

#Massadviser #Woodruff #WealthManagement #FactorInvesting #RiskSmart #Investing

18 views

Lake Oswego, Oregon 97034

2020 BY WEALTHFACTOR - All Rights Reserved 

*Important Disclosures and Disclaimers: No assurances can be made that WealthFactor will be able to achieve its investment objectives or avoid losses. WealthFactor is a Registered Investment Advisor. The information on this website is not intended as tax or legal advice. The information on this website is intended for residents of Oregon. This information is not intended to be personalized and as such should not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular investment strategy. WealthFactor is licensed with the State of Oregon and will seek proper licensing or exemption from licensing before conducting business in any state.  ADV Disclosure documents available upon request.  Click here for additional disclosures.  Click here for definitions.