Keep pulling the thread on Rob Arnott.
Aggregated S&P index funds collectively hold approximately 25% of the total market capitalization of every stock within the S&P index.
Stocks that are added to the S&P index and later removed are sold at an average loss of 7,000 basis points relative to the market.
Schwab, Invesco, and PIMCO collectively manage over $100 billion in assets tied to Research Affiliates' Fundamental Index (RAFI) strategies.
On average, the Research Affiliates Fundamental Index (RAFI) has outperformed cap-weighted value indexes by 2% to 2.5% per year, resulting in over 50% more wealth after 20 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 increased market concentration in the "Magnificent Seven" stocks is increasing risks for investors in broad market indexes.
The active trading portion of a typical index fund, which accounts for about 5% of its turnover, behaves like a hyper-growth investment strategy.
The price movement between the announcement of an S&P index change and its effective date costs index investors an estimated 15 basis points per year.
For S&P index funds with 3% to 5% annual turnover, the trading costs associated with index changes amount to 300 to 500 basis points per stock trade.
Approximately 28% of companies added to an S&P index are subsequently dropped from the index within a decade.
Nearly 50% of companies deleted from the S&P index are re-added to the index within a decade.
On average, stocks added to the S&P index have outperformed the market by 75 percentage points prior to their inclusion.