In this episode of Perspectives: Balancing the Scales, recorded April 18, 2024, DoubleLine Product Specialist Corey Clermont chats with Portfolio Manager Samuel Lau on the differences and benefits of investing in equal-weight versus market capitalization-weighted indices. Mr. Lau highlights the heavy concentration in top names within the S&P 500 Index and the influence of momentum factors on performance, advocating for the diversification benefits of an equal-weight allocation. He then compares historical trends like the dot-com boom-bust cycle to the current scenario showing high concentration risks in market cap-weighted indices.
The pair also explores valuation metrics, noting the divergence in price-to-earnings ratios as well as the long-term outperformance of equal-weight indices, with potentially higher returns despite slightly higher volatility. Mr. Lau goes on to discuss the benefits of equal-weight indices offering a more-balanced sector exposure compared to their market cap-weighted counterparts with significant concentrations, primarily in tech. He emphasizes the importance of considering equal-weight indices for diversification benefits in evolving market conditions and potential shifts toward a mean-reverting environment.
00:00: Intro 00:43: Understanding Equal Weighted Indices vs. Market Cap Weighted Indices 04:06 Historical Trends in Market Index Performance 12:06: Benefits of Investing in Equal Weighted Indices 19:39: Market Exposure and Timing Considerations
Mr. Lau joined DoubleLine in 2009. He is a Strategist on the Fixed Income Asset Allocation (FIAA) Committee and a contributing member on the Global Asset Allocation and Macro Committees. Mr. Lau is a Portfolio Manager on DoubleLine’s strategic commodity strategy while working in portfolio management and trading for derivatives-based and multi-asset strategies, including DoubleLine's Shiller Enhanced CAPE®, Shiller Enhanced International CAPE®, Real Estate and Income, and Multi-Asset Trend strategies. He also co-hosts the Sherman Show (Twitter @ShermanShowPod, ShermanShow@Doubleline.com) and Monday Morning Minutes (Twitter @DLineMinutes, Minutes@Doubleline.com) podcasts. Prior to DoubleLine, Mr. Lau was a Vice President at TCW where he worked under Jeffrey Gundlach as a Research Analyst in the Mortgage Group. He holds a B.S. from the University of Wisconsin, Madison and an MBA from the Marshall School of Business at the University of Southern California.
