By design, the structure of traditional cap-weighted index causes a well-known tendency to buy high and sell low but also an underrecognized propensity for flip-flops.
Addition and deletion flip-flops add up to a shockingly costly drag on performance.
While the math behind cap weighting is sound, the costly flaws call for a smarter way to capture the market that avoids chasing exuberance and dumping despair.
The RACWI US Index is designed to address these deficiencies by changing how stocks get selected.
Rather than chasing price momentum or reacting to market noises, RACWI anchors index inclusion to a company’s real economic footprint.
RACWI US aims to retain the efficiency and transparency of indexing without the structural drawbacks of procyclical rebalancing, thereby adding meaningful value over time.
There has not been a fundamental innovation in broad-market cap-weighted indexing in decades. Until now. With the Research Affiliates Cap-Weighted Index (RACWI), we introduce a fresh approach designed to fix a costly but little-known “bug” in cap-weighted indexing.
Please read our disclosures concurrent with this publication: https://www.researchaffiliates.com/legal/disclosures#investment-adviser-disclosure-and-disclaimers.
