Value index funds have underallocated tech

Michael Batnick looks at why value indexes have performed poorly over the last decade and finds a simple explanation, essentially it’s an allocation issue.

Value has 23% more exposure to financials and 29% less exposure to tech. This is the primary driver of the gap in performance over the last ten years. Over this time, tech stocks have gained 255% while financials have gained just 61%!


via What’s Wrong With Value? at The Irrelevant Investor

Indexing as a brute force solution to stock picking

If you think about it, indexing is a brute force solution of the problem of picking stocks. It is difficult to know which stocks will do well and which ones won’t, so your best bet is to buy them all and hope the aggregate return is positive. You can extend this idea across asset classes as well by diversifying your portfolio.

via Success by Exhaustion – Of Dollars And Data at Of Dollars And Data

Momentum works because it’s the natural evolution of creative destruction

momentum works for a fundamental reason – it’s the natural evolution of creative destruction. You could say that all market cap weighted index funds are momentum funds because they more or less reflect the process by which corporations succeed and fail.

via Why Does Momentum Investing Work? – Pragmatic Capitalism at Pragmatic Capitalism