Outperforming equal weighting

Abstract

The equally weighted portfolio has been shown to outperform many more sophisticated ones, despite not requiring any computations. We demonstrate that the equally weighted stock portfolio can be consistently enhanced by avoiding negative exposure to some of the most prominent equity factors. This can be achieved while preserving the simplicity of the portfolio construction process. Specifically, we introduce three simple long-only portfolios that rely solely on historical return data. These portfolios are slight conceptual deviations from the equally weighted strategy, yet they consistently generate significantly higher risk-adjusted returns in realistic out-of-sample assessments. We provide the most straightforward examples to challenge the notion that outperforming the equally weighted strategy is difficult.