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‘Who’s Left’ To Buy Tech? The Case For A More Egalitarian Rally
"Read my lips: Equal-weighted over cap-weighted index."
So insisted BofA's Savita Subramanian on Wednesday, while raising her year-end target for... well, for the cap-weighted S&P 500.
Subramanian's call received some attention, or about as much attention as you can garner with an FOMC decision on deck. She was emphatic about the likelihood of equal-weighted outperformance.
Needless to say, the equal-weighted index has trailed its top-heavy counterpart at various intervals this year tha
The analysis is sound and logical. But for fund managers, the timing is so difficult. If you rotate out too early, your relative returns will suffer. The same if you wait too long.
Brings to mind Chuck Prince’s quote from 2008.
The Seven Galacticos automatically get 24% of every dollar flow into S&P500 index funds/ETFs, and more of flows into Nasdaq index funds/ETFs, and indirectly benefit to a similar extent from (long/call) flows into S&P 500 options and futures. Which is a tough advantage to break, in a bull market.
In a bear market, that should work in reverse, although perhaps offset by the MegaTech = The New Defensives dynamic.
In an early (economic) cycle bull market, equal weighted and smaller cap should have an advantage.
Another interesting scenario is if a very large Galactico breaks down in an idiosyncratic way, as even a modest flight of market cap from, oh let’s say AAPL, would be enough to light a fire under the market caps of many other names.
I am, by the way, astonished that one-fifth of funds have over 40% of AUM in the Seven Galacticos. That must be one-fifth by fund count, not by fund assets (?)