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In recent years a large number of Exchange Traded Funds (ETFs) have opted for fundamentals based portfolio stock weights rather than equal-weighted or market value weighted. Fundamentals-based weighting models are often referred to as smart beta models because they create stock betas more closely aligned with a stock's intrinsic value. In this study I developed a smart beta portfolio weighting model for the SPDR Healthcare Sector. I selected the top 20 Healthcare Sector stocks by market value as my test portfolio and based on a three year moving average of earnings per share I generated portfolio weights using the inverse coefficient of variation (1/Covariation). Since (1/Cov) is essentially a return-risk ratio, I gave higher weights to stocks with higher return-risk ratios. The portfolio weighting model is re-balanced annually. Portfolio Performance is calculated for the years 2009-2017 and the benchmark is the S&P 500 ETF (SPY).

Publication Date

4-18-2018

Project Designation

Independent Research

Primary Advisor

Tony S Caporale, Robert D Dean

Primary Advisor's Department

Economics and Finance

Keywords

Stander Symposium poster

Comments

Presenter: Casey (Patrick) Casey Marsh

A Smart Beta Portfolio Model fo the SPDR Healthcare Sector: An Empirical Analysis, 2009-2017

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