As the new crypto bull run is emerging, Solidum Prime’s equal weight investment strategy shines once again.
Quick summary
The equal weight investment strategy strongly outperforms the market cap-weighted strategy.
Solidum Prime has outperformed the crypto market for four consecutive months and is one of the best performing crypto portfolios in the world.
At Solidum Capital, we firmly believe in the long-term potential of blockchain technology and the emerging crypto asset class. This is reflected in our investment approach: we build portfolios with a long-term perspective, undistracted by the market fluctuations. When choosing the most suitable investment strategy for our first public crypto portfolio, Solidum Prime, we aimed to select the strategy which best resonates with our perspectives.
Market cap-weight vs. equal weight performance | stock markets
The majority of financial products apply a variant of the market capitalization-weighted investment strategy. Here, each asset is assigned a weight corresponding to its market capitalization, while the equal weight investment strategy, as the name implies, assigns each asset an equal weight in the portfolio.
Portfolio weightings — market cap-weight Vs. equal weight
The most notable example of a market cap-weighted product is the SPDR S&P 500 ETF (ticker: SPY) which tracks the performance of 500 largest US corporations. Some interesting facts about SPY (as of 31 March 2019):
Microsoft is the largest stock with a weight of 3.82%.
The top 10 stocks constitute 22.50% of the index.
Microsoft has the same weight as the 114 smallest stocks combined.
As we can see, the market cap-weighted products result in rather concentrated portfolios. In April 2003, the world’s first equal weight ETF was introduced: Invesco S&P 500 Equal Weight ETF (ticker: RSP). In the chart below, we compare the performance of both ETFs.
S&P 500 ETFs performance analysis | 1 May 2003–31 March 2019 | Source: Yahoo Finance, own calculations. All returns are calculated in USD.
The excess return of RSP on an annual basis is “merely” 1.4% but in the course of 15 years, this amounts to a very strong outperformance of the equal weight ETF compared to its market-cap-weighted counterpart. This is an effect of the compound interest, which was recognized also by one of the greatest physicists in human history:
“Compound interest is the most powerful force in the universe.” - Albert Einstein
Market cap-weight vs. equal weight performance | crypto market
The equal weight investment strategy has been historically outperforming market cap-weighted investment strategies in all major stock markets. We have developed two indices to examine whether the advantages of the equal weight investment strategy also apply to the crypto market:
Solidum 20 Market Cap Weight Index (ticker: S20MWI) is a market cap-weighted index which measures the performance of 20 cryptocurrencies with the highest market capitalization. Each asset is assigned a weight corresponding to its market capitalization.
Solidum 20 Equal Weight Index (ticker: S20EWI) is an equally-weighted index composed of the same assets as the Solidum 20 Market Cap Weight Index but each cryptocurrency in the index is allocated a fixed, equal weight of 5%.
Let’s take a closer look at the performances of both indices:
Solidum indices performance analysis — cumulative performance | S20MWI Vs. S20EWI | 1 Jan 2017–31 March 2019 | Source: CoinMarketCap, own calculations. All returns are calculated in USD.
Solidum indices performance analysis — market cycles performance | S20MWI Vs. S20EWI | 1 Jan 2017–31 March 2019 | Source: CoinMarketCap, own calculations. All returns are calculated in USD.
The difference in the performance is staggering. During the last bull market, the equal weight investment strategy generated 4.3-times higher return than the market cap-weighted strategy. We can expect similar outperformance in the next bull market.
The equal weight investment strategy strongly outperforms the market cap-weighted strategy in the crypto market.
You can find a detailed indices performance analysis in this document. The equal weight investment strategy has several additional advantages over the market cap-weighted strategies — you can read more about these in our investment process and strategy overview (page 2).
Solidum Prime (SOPR) performance
After thorough consideration, we decided to utilize the equal weight investment strategy for our SOPR digital portfolio.
Solidum Prime is the world’s first equal weight crypto portfolio. It is an easy, fast, and secure way to enter the crypto world or to diversify your existing crypto holdings.
We launched SOPR on 4 October 2017 (coinciding with the official opening of the ICONOMI platform), in the last inning of the major crypto bull run. In the first three months, our investment strategy performed exceptionally and SOPR was one of the top three performing crypto portfolios (DAAs) with a return of 343%.
This was followed by a year-long crypto winter, during which SOPR was one of the worst performers. This is a negative aspect of the equal weight investment strategy: it underperforms the market in downturns. However, it works so well in bull markets that we are confident for this strategy to be the most suitable one for the long-term growth of the crypto market.
We believe that the latest crypto bear market ended on 14 December 2018 — you can read our thoughts on this topic in our Monthly Crypto Commentary for December. As the new crypto bull run is emerging, our investment strategy starts to shine once again. As of 31 March 2019, SOPR has outperformed the crypto market for four consecutive months.
We have also analyzed the performance of all crypto portfolios on the ICONOMI platform in positive market environments. The results of our analysis are presented in the following chart:
Performance analysis of crypto portfolios on the ICONOMI platform | Source: ICONOMI, own calculations. All returns are calculated in USD.
If you find these charts confusing, here is an explanation on how to read them:
This is how the financial industry measures the investment performance.
Solidum Prime is the only crypto portfolio with a consistent top quartile performance in the bull markets and one of the best-performing crypto portfolios since the start of the new bull run.
The success of SOPR is based on two pillars: the equal weight investment strategy and our thorough cryptocurrencies selection process. We have learned a lot in a year and a half since the SOPR launch and we are committed to continue improving our investment knowledge — a business value that we have been nurturing continuously for the last 18 years.
Curious to learn more about SOPR and how to invest? Head over to our website.
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Solidum Capital offers easy and proven cryptocurrency investment solutions for both, beginners and experienced investors. Learn more on our website:
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DISCLAIMER: This article is for informational and discussion purposes only and does not constitute a marketing message, an investment survey, an investment recommendation, or investment advice. The article was prepared exclusively for a better understanding of market dynamics.