We think weighting stocks based on size is passé. Weighting stocks based on volatility
may be a better way to construct a core equities portfolio.
Investors are increasingly seeking broad, liquid and inexpensive access to large-cap domestic stocks. For many, the default approach has been an allocation to passive strategies benchmarked to the S&P 500® Index, that iconic index born in 1957 that
has become synonymous with the U.S. stock market.
However, investors should be aware of the inherent limitations to the cap-weighted¹ methodology behind the S&P 500, whereby constituent companies are weighted according to size. The S&P 500 Index provides large company exposure, but with a heavy
tilt to the biggest companies in the domestic investment universe. Thus, passive investments that track the S&P 500 typically will be dominated by the performance of a handful of mega-caps and, conversely, discount the performance of smaller constituents.
If investors prefer a diversified, rules-based approach to large-cap domestic stocks, a risk-weighted index might be a viable alternative.
For illustrative purposes only. Standard deviation is a statistical measure of volatility and is often used as an indicator of the ‘risk’ associated with a return series. Standard deviation of return measures the average deviations
of a return series from its mean. A large standard deviation implies that there have been large swings in a particular security or portfolio return series. For purposes of this illustration, the median standard deviation is assumed at 15%.
(click to enlarge)
*Source: S&P U.S. Indices Methodology, February 2019 (https://us.spindices.com/documents/methodologies/methodology-sp-us-indices.pdf)
All data as of December 31, 2018. For illustrative purposes only. The methodology for the S&P 500 Index and the Nasdaq Victory US Large Cap 500 Volatility Wtd Index include additional factors. To learn more, refer to the S&P U.S. Indices Methodology,
available online at https://us.spindices.com, or visit www.vcm.com/investment-professionals/our-indexes.
At year-end 2018, the Nasdaq Victory Index and the S&P 500 had 293 stocks in common. To learn more about volatility weighting and our risk-weighted approach to
investing, contact your financial advisor or visit www.victoryshares.com
An investor should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing or sending money. This and other important information about the Fund can be found in the Fund’s prospectus, or, if applicable, the summary prospectus. To obtain a copy, please visit victorysharesliterature.com, call your Financial Advisor, or call shareholder services at 866.376.7890. Read the prospectus carefully before investing.
¹Market capitalization, commonly referred to as “market cap,” is a figure used to determine a company’s size. It is calculated by multiplying a company’s outstanding shares by the current market price of one share. Companies
can be ranked by their market capitalizations, and are typically ranked as large-cap, mid-cap and small-cap companies.
Investing involves risk, including the potential loss of principal. Strategies intended to hedge risk may be partly or wholly unsuccessful. The Fund has the same risks as the underlying securities traded on the exchange throughout the day.
Index constituents listed are for illustrative purposes only, will vary and should not be considered investment advice.
Indexes are unmanaged and it is not possible to invest directly in an index.
Nasdaq is a registered trademark of Nasdaq, Inc. and its affiliates (together, “Nasdaq”) and is licensed for use by Victory Capital. The product(s) are not issued, endorsed, sold, or promoted by Nasdaq. Nasdaq makes no warranties as to the legality or suitability of, and bears no liability for, the product(s).
VictoryShares ETFs are distributed by Foreside Fund Services, LLC. Victory Capital Management Inc. is the adviser to the VictoryShares ETFs. Victory Capital is not affiliated with Foreside Fund Services, LLC.
NOT A DEPOSIT • NOT FDIC OR NCUA INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE
©2019 Victory Capital Management