I would like to see a world index benchmark available like SWDA. I feel like that is the most relevant benchmark for me the way I’m investing on both sides of the pond. If I was not actively investing I probably would hold all my savings in an ETF like SWDA.
The top 24 holdings of SWDA are US megacaps. So if you're investing on both sides of the pond, SWDA is not a great benchmark--especially if you're not investing in megacaps.
And then there's the question of currency. When you're investing on both sides of the pond you're exposing yourself to massive currency fluctuations. Do you hedge those? If so, then the ideal benchmark would be currency adjusted.
Finally, the ideal benchmark for most investors would be equally weighted rather than cap weighted. And there are very few equally weighted ETFs (because that involves a lot more rebalancing on the part of the ETF issuer).
A 50/50 blend of U.S. microcaps and European small caps could be a useful reference benchmark.
Okay, it obviously doesn’t make sense to you, but the world index has always been the default overlay on my charts (in my local currency), and I think that’s the case for most non-US citizens.m if they don’t use their national index
No, I don’t hedge currencies. If you’re not a US citizen, your base currency is probably not the dollar, and I highly doubt it’s common for investors to short USD just because their base currency happens to be another currency. Currency fluctuations are part of our reality as non-US resident investors.
The world index consists of 60% US market cap, and that’s the reality right now.
I highly doubt most investors use equal-weighted benchmarks. Can you name one fund manager who compares their performance to an equal-weighted index when reporting to investors?
I know the majority of P123 investors and the site’s owners are US-based and think like US investors, but not everyone is.
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Well, I'm a hedge fund manager and that's what I'm doing. I'm constructing my own synthetic benchmark that's equal weighted and adjusted for currency deviations. That's by far closer to what I'm actually doing (I'm investing in very tiny companies and hedging my currency risk) than any off-the-shelf cap-weighted benchmark. As for other funds, I don't know, but I've heard that many of them create custom benchmarks like I'm doing.
I suppose there are two points to using a benchmark. One is to compare your portfolio to the world of stocks that you're choosing among in order to showcase your skill at picking those stocks. For that it might be most appropriate to use an equal-weighted benchmark. The other is to look at what you or your investors could have invested in instead of your portfolio. For that purpose, which I should have considered in my earlier post, SWDA may be quite appropriate.
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Equal-weight benchmarks are more reasonable if you are trying to see whether you are doing better than the average stock. You say you invest abroad but are you heavily invested in China and emerging markets? (I am heavily invested in EM) if you are not then you might be looking for a developed markets index and not a world Index. Emerging markets are 25% or so of global capitalization and 45% or more of global GDP. SWDA is not a world Index. It is a developed markets index.
For me my reference benchmark is always SP500, reason:it is my opportunity cost...if i cannot beat it...I move on
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Makes sense if you are American and invest in US.
I agree that there are multiple valid reasons to use a benchmark—one of which is to estimate opportunity cost, which varies depending on where someone would invest if not actively managing their portfolio. That’s a personal decision, and it seems reasonable that users should be able to choose a benchmark that reflects their situation.
I already use a benchmark I’m satisfied with, but I don’t mind if P123 adds others that users find helpful. There’s no harm in offering more options—unless the maintenance cost is too high, which is P123’s call.
Yuval has a point about this.
This is especially important when designing ML models. The ability to isolate stock-picking skill—independent of market drift—is central to that process. So a benchmark based on the equal-weighted universe is ideal.
But is it just me, or is it relatively difficult to use the universe itself as a benchmark within P123’s AI/ML module?
Or any equal-weighted benchmark for that matter? Other than the SP500 equal weight index I do not see any other equal weight benchmarks. An equal weight benchmark for the Russell 2000 would be better for most of us, I think.
Maybe there’s an easy way to create an aggregated series and use that to generate an excess-returns target in the AI/ML module—if so, it would be great to have a walkthrough. I suspect the capability exists and has just been overlooked. As it stands, it’s often easier to download the data and calculate excess returns relative to the universe externally.
It would be unfortunate if that ends up being the main reason users avoid the AI/ML module in favor of offline work.
I voted for this. I understand that P123 already offers a large number of benchmarks and can’t keep adding new ones indefinitely—especially if there’s development or maintenance overhead. But I’d vote to add this benchmark and deprecate the 1–5 year corporate bond benchmark, which I can’t imagine ever using—either in a stock portfolio or even in an ETF strategy.
I would also vote for an equal-weight Easy to Trade Universe as a benchmark or just a clear way to make the universe a benchmark for models and the AI/ML.