How the Tortoise invested and won

We all know the Tortoise famously triumphed over the brash and boastful Hare. While the Hare enjoyed early outperformance, his long term performance lagged. A look at the Tortoise’s splits during the famous race would illustrate that his splits were all equal. He didn’t speed up at the beginning or the end and he didn’t slow down during the middle of the race. In investing, equal weighting has similar long term success to the Tortoise’s.

Market Vectors Australian Equal Weight ETF (ASX code: MVW) is the only Australian equities equal weight ETF. It tracks the Market Vectors Australia Equal Weight Index (MVW Index) which compared to the S&P/ASX 200 Accumulation Index (S&P/ASX 200):

• has outperformed in ten of the last 13 years;
• has a better risk/return trade-off; and
• is around three times better diversified.

Last week Van Eck Global released a paper reinforcing earlier research that found an investment portfolio following an equal weight index would have produced significantly higher long term returns and better diversification than one following a traditional market capitalisation weighted index.

Read here: Equal weight investing in Australia twelve months on

Equal weight indexing has been around for decades in the US and Europe. It is an index construction methodology that gives all constituents an equal weighting regardless of market capitalisation.

MVW introduced Australian investors to equal weighting in March 2014. Van Eck Global’s paper identifies that in its first full year MVW outperformed the S&P/ASX 200 by 3.60% returning 18.16%¹. Additionally, it achieved top quartile performance in its peer group of Australian Equity Managers². Further, by analysing the returns of the MVW Index, Van Eck Global highlights that the equal weight index has outperformed the S&P/ASX 200 in ten of the last 13 years.

To give some scale to this the chart below illustrates the cumulative absolute difference between the two indices. Over the long term, equal weight outperforms.

Cumulative absolute difference: MVW Index vs S&P/ASX 200
1 January 2003 to 28 February 2015

Source: FactSet as at 28 February 2015. Index performance shown on the index which MVW tracks prior to its launch date is simulated based on current index methodology. Results are calculated to the last business day of the month and assume immediate reinvestment of all dividends and exclude costs associated with investing in MVW. You cannot invest directly in an index. The above performance information is not a reliable indicator of current or future performance of MVW Index or MVW, which may be lower or higher.

In a concentrated market like Australia, greater diversification benefits can be achieved by applying an equal weight index methodology where all securities are held in the same proportion, regardless of their market capitalisation. Equal weighting reduces the concentration risk of the large companies, such as the big banks and big miners that dominate the S&P/ASX 200.

Key findings of Van Eck Global’s paper include:

• The long term performance of the Market Vectors Australia Equal Weight Index demonstrates better risk characteristics than the S&P/ASX 200. That is, the better performance identified above is not the result of greater risk-taking. Equally weighting delivers better returns without excessive risk.
• Criticism of equal weight investing has concentrated on turnover and capacity. In practice neither has been an issue due to carefully developed index rules. In addition to being within acceptable ranges, the turnover at rebalance of MVW is inherently contrarian and a source of outperformance for the portfolio.

The findings are supported by academic and commercial research. Institutions such as The University of London’s Cass Business School, EDHEC Business School, Goethe University and Australia’s own Monash University, have demonstrated and rationalised the long term outperformance of equal weight investing. These findings reinforce industry research by index companies S&P Dow Jones Indices and Market Vectors Index Solutions

For more information on MVW click here or call 02 8038 3300.

¹Source: Factset: as at close of business 3 March 2015. MVW commenced on 4 March 2014.
²Morningstar Large Cap Peer group

Important Notice:This information is issued by Market Vectors Investments Limited ABN 22 146 596 116 AFSL 416755 as responsible entity (‘MVI’) of the Market Vectors Australian Equal Weight ETF (‘Fund’). MVI is a wholly owned subsidiary of Van Eck Associates Corporation based in New York, United States (‘Van Eck Global’).

This is general information only and not financial advice. It does not take into account any person’s individual objectives, financial situation nor needs (‘circumstances’). Before making an investment decision in relation to the Fund, you should read the product disclosure statement (‘PDS’) and with the assistance of a financial adviser consider if it is appropriate for your circumstances. The PDS is available at www.marketvectors.com.au or by calling 1300 MV ETFs (1300 68 3837).

The Fund is subject to investment risk, including possible delays in repayment and loss of capital invested. Past performance is not a reliable indicator of current or future performance. No member of the Van Eck Global group of companies guarantees the repayment of capital, the performance, or any particular rate of return from the Fund.

The Market Vectors Australia Equal Weight Index (‘MVW Index’) is the exclusive property of Market Vectors Index Solutions GmbH based in Frankfurt, Germany (‘MVIS’). MVIS makes no representation regarding the advisability of investing in the Fund. MVIS has contracted with Solactive AG (‘Solactive’) to maintain and calculate the MVW Index. Solactive uses its best efforts to ensure that the MVW Index is calculated correctly. Irrespective of its obligations towards MVIS, Solactive has no obligation to point out errors in the MVW Index to third parties.

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