Boston QWAFAFEW Next meeting Tuesday December 19, 2017 – 6:15 PM Sharpe, Boston Tennis & Racquet Club at 939 Boylston Street.
“The Case for Reverse Market-Cap Indexing”
A discussion led by Herb Blank, Senior Consultant, Global Finesse
Index investing can trace it roots back almost 50 years. However, the dynamics around implementing index portfolios have changed as capital markets have evolved, opening up new discussions around the possibilities and potential benefits of different index methodologies. This paper sets out to explore the investment potential of an index consisting of the same stocks as the popular market-cap-weighted S&P 500, but weighted by the reciprocal of each stock’s market capitalization. We explore the properties such an index would have versus traditional capitalization-weighted and equally weighted schemes. This is followed by empirical testing and attribution analysis to confirm whether reverse-cap weighting provides a viable alternative to the momentum, concentration, and anti-value biases inherent in capitalization weighted indices.
Herbert (“Herb”) Blank is a Senior Consultant with Global Finesse LLC. He provides ETF, enhanced indexing, ESG-related, and product development services linked to his expertise. Specialties are assisting clients expand their reach and raise awareness by authoring white papers, then promoting them through educational webinars, seminars, and interviews.
His prior position had been as Director of the Global Benchmark System at S-Network Global Indexes and ESG Solutions. Herb was responsible for education and presentations on index development with an emphasis on “Smart Beta” and ESG ratings and indexes. Before S-Network, Herb worked as Managing Director of Quantitative Solutions at Rapid Ratings International, where he served as account manager for institutional investors, insurance companies, and banks and assisted risk managers in integrating the firm’s data into corporate systems.
A recognized pioneer in the ETF industry, Herb was Founder and Managing Principal at QED International Associates, where he consulted with asset management firms to develop and market ETFs, global asset allocation strategies, and risk-controlled hedge vehicles. In this capacity, he assisted in product development and introduction of iShares, and GLD. From 1993-1997, Herb was a Director at Deutsche Bank Securities Corporation. He served as Senior Portfolio Manager of CountryBaskets, nine different country index funds and the first ETF family to use the fund structure, as the first ETFs to trade on the NYSE.
From 1990 – 1993 at Value Line Inc. as Senior Quantitative Analyst, Herb worked on developing and maintaining stock ranking systems while developing and serving as portfolio manager of tilted index portfolios. Fidelity Bank in Philadelphia was his home through most of the 1980’s where he developed and managed quantitative portfolios as part of a team that worked with Stephen Ross, PhD. to introduce Arbitrage Pricing Theory into institutional portfolio management. A frequently published author, Herb’s MBA is from NYU Stern; he also holds M.A. and B.A Mathematics degrees from the University of Pennsylvania. Herb also serves as Steering Committee Chairperson of the New York Chapter of QWAFAFEW which he helped re-launch in 1997 and has since helped launch and promote other chapters around the world.