How to beat the SPX
Example
There are only 2 companies in the world
Company A & Company B
The fair value of both companies is 100
Company A trades at 250 and company B at 50.
In the SPX company A has a weight of 250/300 =83% and company B 50/300 17%
World normalizes and company A and B return to their fair value of 100
Company A has a return of -150/250=-60%
Company B has a return of +100%
equal weight gains at market weight , equal weight gains at SPX
When there are a lot of flows into indexing it's possible that company A gets even more overvalued than company B. YES it is happening now and it happen in 1999.
how to solve this problem?
We have a system than gives Risk parity weights and that mitigates this problem.
contact us if you want to know more
Geral@lisbonfamilyoffice.pt
Share story
0 comentários: