Revised Model Fund Portfolio: Benchmark Impacted by Cap Weighting

by James B. Cloonan

Revised Model Fund Portfolio: Benchmark Impacted By Cap Weighting Splash image

The Model Fund Portfolio increased nicely over the past three months and is now up 11.5% year-to-date as of September 30, 2012.

However, the S&P 500 index, as measured by the Vanguard 500 Index fund (VFINX), is up 16.3.% over the same period, outpacing every one of the funds in the portfolio. VFINX is even ahead of Guggenheim S&P 500 Equal Weight fund (RSP), which is rather unusual since the equally weighted RSP exchange-traded fund consistently outperforms the capitalization-weighted VFINX mutual fund, as you can see by comparing their three-, five- and nine-year results in Table 1.

The one time that the cap-weighted model is sure to work best is when the heaviest weighted holding [Apple Inc. (AAPL), 4.4% of VFINX] goes up over 60%. Apple had a fantastic run and Google Inc. (GOOG) also helped. Unlike the tech bust of the early 1990s, AAPL and GOOG are not high price earnings ratio stocks, and both could go to $1,000 per share without high price-earnings ratios, but not without risk.

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James B. Cloonan is founder and chairman of AAII.


John Read from Illinois posted about 1 year ago:

A very well constructed portfolio with sound management and its main attraction for me is that holding the MFP can save a lot of work!

Well done.

Francis T Lenoir from Texas posted 5 months ago:

The content of these articles is usually clear except when it gets technical. I'm just annoyed that I cannot find any article helping me with "how to put these lessons into practice", that is, "how you go about opening or setting up an account". I need help w/this.
Somebody out there, please solve this equation for me. If you can help, pls, drop me a line at 832-729-6910 or you can contact me through email as " Thanx.

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