Keep pulling the thread on Rob Arnott.
Aggregated holdings of S&P index funds represent approximately 25% of the total market capitalization for every stock included in the index.
Schwab, Invesco, and PIMCO collectively manage over $100 billion in assets tied to Research Affiliates' Fundamental Index (RAFI) strategies.
The Research Affiliates Fundamental Index (RAFI) has outperformed cap-weighted value indexes by 2% to 2.5% per year compounded, resulting in over 50% more wealth after 20 years.
Based on live performance data, the Research Affiliates Fundamental Index (RAFI) has beaten cap-weighted value indexes in approximately three out of every four years.
Market cap-weighted indexes, such as the S&P 500, have dominated investor inflows and performance since the 2008 financial crisis.
Critics of cap-weighting argue that the increased market concentration in the "Magnificent Seven" stocks is increasing risks for investors in broad market indexes.
On average, stocks are added to market-cap weighted indexes after they have appreciated 75% relative to the market in the prior year and are trading at twice the market multiple.
The trading activity related to S&P index rebalancing creates a performance drag of 15 basis points per year for index funds due to front-running.
Approximately 28% of stocks added to the S&P index are subsequently removed within a decade.
Nearly 50% of stocks deleted from the S&P index are re-added within a decade.
Stocks that are deleted from the S&P index and later re-added underperform the market by approximately 3,500 basis points in the year before their removal.
Stocks that are deleted from the S&P index and later re-added outperform the market by approximately 180 percentage points before being re-admitted.