Invest Equal Amounts Monthly In…
- iShares Core S&P Small Cap Value – IJS
- PowerShares NASDAQ 100 – QQQ
- Guggenheim S&P 500 Equal Weight – RSP
In the 14 year period* (2004 – 2018), a $100,000 investment in the IFR portfolio outperformed “The Market” (S&P500) by $108,000.
Here’s the comparative graph (click to enlarge)
Why 14 Year Period?
The Guggenheim S&P500 balanced portfolio (RSP) inception date was 10/1/2003. In order to compare equities, the start dates must be the same; hence the start date of 01/01/2004.
Why Three Funds?
These three funds combine to completely cover the traditionally, high performance sectors. Read on.
Why Small Cap Value (IJS)?
A large and growing body of academic research suggests there are market anomalies that can be exploited. Some of that research has been recognized with Nobels in economic science — William F. Sharpe in 1990 and Eugene F. Fama in 2013. One of these findings is that value outperforms growth, rewarding those who identify stocks with lower price-earnings ratios and lower market capitalization.
“Value” stocks have consistently outperformed their opposite “Growth” category over all time periods. In particular, Small Cap Value stocks have significantly outperformed other investment categories since 1929. Look at the table below.
Additional Confirming Evidence
The table below shows that the Small Cap Value style has outperformed any other style over the 30 year period 1972 to 2002. This is well in line with the previous table but from a different source.
Small Cap Value has the best 30 year performance of all the other investment styles. Here’s more evidence to give confidence that investing in the small cap value funds is likely to yield superior results.
And finally, picking up where the other tables leave off…
Still More Evidence 2000-2017
The green-red line represents the S&P500, the light blue line represents iShare’s S&P Small Cap Value fund (IJS) performance over the same time period.
Why Nasdaq (ONEQ)?
First, What is the ‘Nasdaq’?
A global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks. Nasdaq was created by the National Association of Securities Dealers (NASD) to enable investors to trade securities on a computerized, speedy and transparent system, and commenced operations on February 8, 1971. The term “Nasdaq” is also used to refer to the Nasdaq Composite (ONEQ), an index of more than 3,000 stocks listed on the Nasdaq exchange that includes the world’s foremost technology and biotech giants such as Apple, Google, Microsoft, Oracle, Amazon, Intel and Amgen.
Second, How Has Nasdaq Done Vis-a-Vis Dow Jones?
It has done very well! – 4783% vs 1924%
Why Guggenheim S&P500 Equal Weight (RSP)?
Because it provides the same coverage of the large cap stocks in the S&P500 as the standard S&P500 …
because it has significantly outperformed its parent, the S&P500.
What is the Guggenheim S&P500 Equal Weight?
In the S&P 500® Equal Weight Index, each of the 500 stocks that make up the index are “equally weighted.” This is in contrast to the standard S&P500 (SPY) where each component stock is weighted according to its total market capitalization.
For example, Apple, Microsoft and Amazon account for over 8.5% of the value of the standard S&P500. In contrast, the same three companies account for only 0.6% (100% divided by 500 companies = 0.2% times 3 companies = 0.6%) of the value of the S&P500 equal weight.
How Has The Guggenheim Performed vis-a-vis the S&P500 (SPY)?
It has done very well as shown in the chart below:
As you can see, the equally weighted S&P500 has outperformed its parent, the market cap weighted S&P500, by a 2-1 ratio!
How Likely Is This To Continue?
But even if the outperformance should not be as pronounced in the future, you will probably still meet or exceed the performance of the S&P500 – there’s a lot of distance between them.
One more time: The S&P500 vs the IFR Portfolio
Red-Green Line: S&P500 150%
Equally Weighted (RSP) Gained 217%
Green: Light Blue: Nasdaq (ONEQ) Gained 244%
Dark Blue: iShares Small Cap Value (IJS) Gained 263%
For a detailed presentation of results, CLICK HERE
While it is much simpler to merely invest in the S&P500 the improvement in expected average annual returns (17% vs 11%) is worth the extra effort.