Replies to post #45241 on A.I.M. Users Bulletin Board (AIMUSERS)

[OldAIMGuy]

I am also continuing to maintain my "sandbox" portfolio of 10 company stocks. It's up 11.5% for the first Quarter of 2021.



Generally there's more activity in this portfolio than in the ETF portfolios both on the sell and buy sides. I've chosen and switched components along the way. It's a retirement account so switching components has not current tax consequence.

OAG Tom

[ls7550]

Hi Tom

I have a portfolio of U.S. based Sector ETFs, too. These are the 10 sectors of the S&P 500 but each are "equal weight" design rather than cap weighted

The nice thing about equal weightings is that by definition the worst will have the 'others' having done better, and where the worst is diluted (such as your 10% weightings).

Whilst cap weighting can at times do well, such as over the last year or so with the techs having become dominant of the S&P500 and pulled the entire index value up, at other times it works the other way around. Japan 1980's/1990's for instance had many of the massive cap stocks seeing valuations halved or more, but that remained 'big' and dominant of the index. And it took decades for that distortion to be corrected.

With mid caps, stocks feed and in and out of both the top and bottom of the index, so its less inclined to see individual stocks becoming excessively weighted and dominant. A similar situation applies to equal weighted sectors. Broadly more equal weighting, less concentration risk, is a good thing IMO, even though at times concentrated exposure can work out well. Generally the whole tends to have the average individual holding lag the broad average, most stocks for instance lag the index/average as its the scale of the gains in the best case(s)/stocks that raises the broad average. A 7 foot giant entering a room full of 9 others that are each 6 foot tall and 90% of the room are below the average height. In the absence of being able to reliably predict which might be the giant its best to spread your bets equally, $1 on each, rather than 50c on 9, $5.50 on 1 and more often/likely having been wrong.

Regards.

Clive.