For those who don’t already know, I am not a fan of market-cap-weighted indexes like all the S&P Canadian indexes and the US S&P 500. In the US S&P has the S&P Equal-Weight Index and there is an ETF that tracks it, the Rydex S&P Equal Weight ETF. In Canada there is no such index provided by S&P and no ETF. I knew that there was no Canadian ETF in existence that was equal-weighted but I thought that there must be at some theory, data-mining, or an informal index out there.
Yesterday, I finally found something: an equal-weighted index for the S&P TSX 60. After what seemed like hours digging through Google search results and varying the keywords I gave to Google, I finally found a company called Shaunessy Investment Counsel in Alberta that has formed such an index which they invest in using their clients’ money. The performance as of September 30, 2005 is shown here, where they also mention that the index is “equal weighted, re-balanced quarterly.” An older Shaunessy news article I found on Google compared this index to the S&P TSX 60 Index and shows excellent results, which I will reproduce below:
Canadian Large Cap versus Index Comparison
Rates of Return Ended June 30 2004
|Q2 04||Year to Date||One Year||Three Years||Five Years|
|TSX 60 TRI||-0.1%||4.1%||22.1%||4.1%||4.7%|
|SIC 60 EWI*||2.5%||4.3%||26.2%||8.9%||9.9%|
| Source: RBC Capital Markets, Mercer Investment Consulting, Shaunessy Investment Counsel (SIC)
* Price Index only constructed by Shaunessy Investment Counsel
The “Mercer Median” is the median performance of a whole bunch of mutual funds, from the “Mercer Institutional Pooled Funds report.” They also note that “the EWI is a price index and does not include dividends which would add at least another 1-1.5% to total returns.” The results are even more impressive if you take into account the dividends paid.
Don’t get your hopes up about buying a piece of the index from Shaunessey. They require a $2 million minimum to be a client. To just buy the index and not have a “fully-managed” portfolio with them, you will need to invest $6,666,666 million (0.15% as percent of assets, minimum fee is $10,000). More evidence that the more money one has, the more access one has to better investment advice and services.
It is possible to create your own S&P TSX 60 Equal-Weighted Index (EWI), however, paying $50 commission for each stock would become prohibitively expensive. To keep your commissions to 1% of your initial purchase you would need $300,000 total assets. And rebalancing every quarter would also become very expensive.
Another way to have an approximation to Shaunessey’s index would be to buy certain amounts of sector ETFs and rebalance the allocation of each ETF regularly; however, within each sector ETF the stocks would still be market-cap-weighted.