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five years relative to US equities.
This suggests that an equal weighting will likely degrade
performance further. In the next section the strategy for equal weighting is carried out.
25.5.4 Equal Weight ETF Portfolio
The tearsheet for the strategy is given in Figure 25.3.
Figure 25.3: Equal Weight ETF Portfolio
Once again the benchmark is provided by a buy-and-hold portfolio (i.e. no monthly rebalancing)
solely of the SPY ETF.
As expected the performance of this portfolio is indeed significantly worse than either the
strategic weighting or the 60/40 mix. The portfolio remains underwater from 2008 onwards and
posts a CAGR of almost -5%. The maximum daily drawdown of this strategy is just under 73%.
However it is also clear that nearly all of the drawdown is a consequence of the 2008 financial
crisis. Had the backtest been carried out a year later the results would likely have been quite
different, albeit still underperforming with regards to SPY.