Sat, 28 May 2016

In one of my blog posts. I talked about equal-weighted STI outperforms market cap. weighted portfolio (Our current STI). And the outperformance is huge.

One question in everyone's mind is, then why STI ETF does not base its portfolio on equal-weighted instead? First of all, to answer that we need to go back to the origin of market index. STI as it name suggests is an Index with the goal of measuring price movement of the stock market. Its goal is not to produce optimum investment performance.

Now I can answer the question: equal-weighted index does not accurately represent the overall stock prices movement in an exchange. Only market cap weighted does. Assuming there are 100 stocks in SGX, and 90% of the total stock prices is contributed by only the top 10 stocks.

So shouldn't it be fair that weightage should tilt toward the top 10 ...