The Test Bench › index_rule

Does Cap-Weight (the index everyone buys) actually work?

REAL

A measurable edge that survived the checks we ran.

The claim

Weight every holding by its market value -- the default 'total market' index — S&P / Vanguard et al.

What we did

Tested against Cap-weight SPY, buy & hold, 2017-2026, 100-stock equal-weight, annual rebalance, survivorship-free.

The result

Result: 12.5 %/yr CAGR (cap-weight = +12.5)

+12.5%/yr CAGR, Sharpe 0.74, maxDD -34% (2017-21 +16/yr, 2022-now +9/yr)

Verdict

The honest baseline: buy & hold, +12%/yr, Sharpe 0.74, -34% drawdown. It genuinely WORKS and is hard to beat -- but NOT because cap-weight is optimal. It won this era by concentrating ever-harder into a handful of mega-caps. Beatable by a cold rule (see momentum); not by 'opinion'.

What the test did and did not do

survivorship-free universe
point-in-time data
checked for look-ahead
net of real costs
tested out of sample

Almost nobody publishing a backtest says which of these they did. We list the ones we failed as well as the ones we passed.

Tested 2026-06-23. The same treatment, applied to every other system, is on the test bench.

← Alpha Architect US Quant Momentum (QMOM) All findings Cheapest 100 by P/E (value) →

Written with AI assistance from our own test database. The numbers are computed, not composed.
General market commentary for education, not personalised investment advice. Backtested results are hypothetical. Trading carries a real risk of loss.