00:00Let's start, of course, with what historical weight is and why it makes sense to weight
00:05your holdings based on history versus maybe market weights or equal weights.
00:09Thanks for having me on the show today.
00:11So when you think about market weight, concentration in market weight is at the highest level in
00:1678 years since the S&P 500 index was created.
00:19And then if you think about the equal weight approach, which was invented 22 years ago,
00:24the tracking error is at the highest rate in 22 years.
00:27What does that mean?
00:28When EcoWeight launched, the overlap between EcoWeight and market weight was 85 percent.
00:33But today that overlap is 45 percent.
00:35So actually when you buy EcoWeight, you're deviating from market weight.
00:40What historical weight does is looks at the 500 slots in the index and looks at the last
00:4536 years and looks at what is the average weight of the 500 slots applied to the current 500
00:51companies, which is updated quarterly by S&P.
00:54So it gives you, what does it do?
00:55It halves the concentration and it also increases the overlap from 45 percent to 85 percent.
01:02How do you envision people hold this?
01:03Do they own this and an index tracking fund?
01:06So this is a passive rules based solution.
01:10The index is powered and calculated by S&P Global Inc.
01:13And we've seen folks come from RSP or from SPY, folks that are worried either about concentration risk or worried about the trucking error risk that you have in RSP today.
01:22It's really a core holding for folks that have either of these two concerns.
01:25Okay.
01:26The MAG7, everybody's on the same tip.
01:29These stocks control the index too much.
01:32But these seven stocks have acquired almost a thousand companies.
01:36They are like small countries.
01:38So what do you say that this is a secularly different situation?
01:41Yes, they're one name, but there's no antitrust anymore.
01:44So these things are just getting bigger and bigger.
01:46Any good company, they just buy.
01:48Therefore, it's okay that it's top heavy.
01:51Yeah.
01:52So it's a very good point that the MAG7 is more companies than just seven companies.
01:56But if you look at history over time, historically, we have seen newer versions for different reasons.
02:01We saw it most notably in the 1970s, which is a long time ago for most investors today.
02:05And the back half of the 1970s was a very painful period for investors.
02:08That was during the nifty 50 era.
02:10So when we look at the MAG7 today, the MAG7 is going to continue to grow.
02:14But the question is, do you want to stay invested with the S&P 500, but just reduce your concentration
02:19risk?
02:20You're not deviating massively from the S&P 500.
02:22But if you buy equal weight, you're effectively taking increasing bet against the S&P 500 by
02:27virtue of the overlap.
02:28So I think to your point, Eric, this is not just a bear market solution.
02:32I think there's a solution for folks that want to stay invested, but want to just moderate
02:35their concentration risk.
02:37Does doing historical weight make sense for any other market outside the U.S. where the concentration
02:40is so extreme?
02:41Yeah.
02:42So we looked at it in different prisms.
02:43So, for example, Nasdaq, concentration is even higher.
02:46But they're asking that Nasdaq has intentionally always had higher concentrations, less companies.
02:49The S&P 500 is 500 companies, Nasdaq has 100 companies.
02:52So we think that it's most relevant in S&P, but also because that equal weight deviation
02:57is the highest we've seen.
02:58And just to give you an example, if you look at equal weight, do you want your NVIDIA to
03:03be equally weighted with your Campbell soup?
03:05I don't know if you do.
03:06If you do, that's where you get an equal weight.
03:09And I wonder, again, who the audience is.
03:11I mean, Scarlett sort of addressed this, but I mean, just in the 30 seconds we have left
03:16with you.
03:17I mean, is this sort of something that institutions would be interested in or a retail investor?
03:22So we've seen advisors primarily adopted, and we've seen growing interest from retail.
03:26And the advisors that have adopted are really folks that are looking to de-risk their core.
03:29They don't want to move away from SPY, but they want to slightly reduce their existing,
03:33what the perceived risk in SPY.
03:34Which, you know, in the last few months has really been, frankly, something that's lagged.
03:38But this, again, has an index that goes back to 2000, so you can look at how it's done
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