How does the RAFI portfolio compare with an equal-weighted portfolio?
An equal-weighted portfolio, such as the S&P 500 Equal Weight Index, breaks the link between price and index weight and, thus, theoretically performs very well relative to a cap-weighted index. Unfortunately, equal-weighted portfolios have practical limitations that make them unattractive as investments. In particular, equal weighting fails to reflect the real economy, some stocks lack capacity for large-scale investments, and turnover costs are relatively high in such portfolios. See the July 2007 issue of Fundamentals.
