The Canadian Investor - Why Billionaires Are Investing in Pro Sports + The Case for Equal Weight ETFs

Episode Date: July 13, 2026

In this episode of The Canadian Investor Podcast, we break down Rogers’ move to take full control of Maple Leaf Sports and Entertainment and what it says about the rising value of professional sports franchises. We look at how Rogers’ sports assets compare to the company’s overall market value, why scarce live-sports assets continue to attract premium valuations, and how NHL, NBA, MLB and NFL franchise values have grown over the last decade. We then shift to the S&P 500 and the growing debate around equal-weight versus market-cap-weighted ETFs. With the top holdings now making up a large share of the index, we discuss whether investors are still getting the diversification they expect, why AI-related concentration has become such a major factor, and how equal-weight ETFs can act as a defensive hedge while still keeping broad U.S. market exposure. Tickers discussed: RCI.B.TO, BCE.TO, RSP, EQL.TO, EQL.F.TO, VOO, ZSP.TO, MSFT, MU, TSLA, WMT, BRK.B, LLY, JPM   Subscribe to our Our New Youtube Channel! Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.  See omnystudio.com/listener for privacy information.

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If there's uncertainty in the markets, there's going to be some great opportunities for investors. This has to be one of the biggest quarters I've seen from this company in quite some time. Welcome back to the Canadian Investor Podcast. I'm Simon Belanger. I'm back with Dan Kent. we have a fun episode here. So first, we'll be going over sports teams and whether these are good investments or not. And obviously, this is on the heels of Rogers communication announcing that they would be buying the remaining stake of Maple Leaf Sports and Entertainment. So MLSC, that it did not own from Kilmer Sports, which is owned by Larry Tannenbaum. And then you'll be going over the equal weight SMP 500.

and whether it's a viable strategy or not. And I think you'll be comparing that to the S&P 500, the regular index. Yeah, I have a bunch of kind of data and just commentary on this because it is one of the more popular strategies this year. The equal weight funds are seeing a ton of inflows. And it's kind of a, I guess you could say, like a defensive hedge against a concentration. So a lot of people have started to ask me, like, is this a viable strategy or not? so I did some digging on historical returns. I'll go over kind of why you would do this, why you wouldn't do this, things like that.

But yeah, it should be a pretty good episode. Yeah, so let's get started here. And I do have some charts that I worked on that should be fun for the sports team valuation. So I decided to look at the four major leagues in North America. And like I mentioned with the purchase from Rogers purchasing the remaining stakes in MLLC. They'll actually own quite a few of the teams in Toronto, almost all of them. Not quite all of them. Yeah, they don't own the women's team. Those are still owned by Kilmer Sports and were not part of the MLSC. But what's really interesting is like I mentioned on the Thursday

News and Earnings episode, the deal represent a 39% increase in valuation in less than two years since Rogers agreed to buy BC's stake in MLSC. During the same time frame, the S&P 500 add total returns of 36%. So it actually outperformed the S&P 500 a little bit. And with the purchase, Rogers will own the Blue Jays, the Maple Leafs, the Raptors, Toronto FC, the Argonauts, and the Toronto Marleys, along with a few other lesser-known sports franchises. I think they own like an e-sport one, if I remember correctly.

And what's crazy is when you start looking here at Rogers is that they have a market cap of 26 billion and an enterprise value of 76 billion. So that gap between the two is just essentially liabilities that Rogers had. And we've talked about it before. Evie would be if you bought the company, so you take the market cap and you just add in the debt. So if you bought the company,

you'd have to essentially take on the debt. So you'd pay so it was $76 billion. And what's really interesting is that the purchase price of MLSC implies a valuation of around 17 billion Canadian dollars. And the Blue Jays are valued at around 3.5, 4 billion Canadian dollars because they weren't part of MLSC. So you're getting close to like 21 billion roughly in sports franchises when the company has a market cap of 26 billion. And granted, you know, there's all the debt that goes with it. And obviously there is a communication business with that. But I just thought it was interesting to bring that context because now more and more,

if you're buying Rogers, it's kind of an outlier in terms of telecoms in Canada where you get this massive sport franchise asset. Yeah, kind of like a, well, I guess he wouldn't call it a media situation, but I guess it does. because there's a lot of brand power. There's a lot of, yeah. And I remember if you dig way back into the podcast vault, when BCE sold this to Rogers,

we actually thought it was a bad idea because they, they had initially sold it to pay off debt. And then I think less than two weeks later, they flipped it into, was it Zipli, Zipley fiber? Maybe in the United States. Oh, yeah, I think on the West Coast in the U.S.

Washington State, if I remember correctly. Yeah, because I remember B.C. like they initially sold this and everybody thought it was a good idea like oh they're going to repair the balance sheet kind of get the debt down and then they flipped it into the into the u.s fiber and we kind of thought like for a very long time hockey franchises have just gone up into the right in terms of valuations like they don't i don't think they generate a ton of of operating income or like they're profitable but they're not super super profitable relative to to other areas of the business but these franchises hold a ton of value and i think it was a really really, really good move by Rogers. The one negative thing, I guess, well, especially here in Calgary, is they pretty much bought this and got rid of a bunch of radio stations, like a very popular fan 960, they call it, here in Calgary. Yeah.

They kind of just turfed it, cut it off the air right away. Oh, really? Pretty sad, but yeah, I think they're doing that in quite a few places. Yeah, and I mean, let's start here. So what I ended up doing is I was like, okay, let's look at how the big four leagues in North America, like how is how have they done in terms of valuation? Like you said, doesn't necessarily mean that the underlying business, you know, generates a whole lot of free cash flow every single year. I think what is true for a lot of these teams is that you're seeing that,

especially in the smaller markets, profitability will depend a whole lot on revenue sharing in the leagues, but also whether the team makes it into the playoffs and how deep they make it into the playoffs because whatever happens, at least in the NHL in the playoffs, goes straight to essentially the team, right? So the players are played for the regulator season and anything they make in the playoffs go straight into the owner's pockets at that point. So that's why the teams are very incentivized to try and make their playoffs and not rebuild. But I just wanted to mention that. But at the end of the day, whether, you know, the business might be a bit more cyclical, especially for the smaller market team. The reality is the valuations, what you can sell those teams for

has just gone way, way up over the years. So let's get started with the NHL teams. The most valuable team in the NHL, probably not a surprise. It is the Toronto Maple Leafs. And what I did is I was, I got some data. Obviously, I leverage AI to do that because it probably would have taken me days to do it. And then most of it comes from Forbes, which they come out every single year with the valuations of the teams in the big four leagues in North America. And I started with a 2012-2013 baseline because that was the cleanest data that I could find that was reliable and then used 2025. So at the end of last year to compare that.

So during that time frame, the Toronto Maple Leafs now are award $4.4 billion or as of 2025. That's a 3.6, 3.7 multiple over that time frame. The New York Rangers come in second at 4.7. And the Montreal Canadiens round the top three at 4. Sorry, at 3.4 billion. New York Rangers are actually 4 billion exactly. And the Montreal Canadians increased 4.4 times over that time frame. And the Edmonton Oilers coming forth, kind of surprise on that,

at 3.2 billion and 8x over that time frame. And just to quickly mention other Canadian franchises trying to make sure we cover all of them. The next one on the list would be the Vancouver Canucks coming in at number 14 at 2.15 billion and 3x over that time frame. After that you have the Calgary frame that flames at 1.9 billion, 4.5x over that time frame. And then you're looking at the Ottawa senators 1.38 and the Winnipeg Jets 1.35 and they are both in the 3.6, 3.9 kind of frame. in terms of the increase in value. So not too shabby.

And during that time frame, what I wanted to compare was actually looking at the S&P 500. So since January 2nd, 2020, 12, until the end of last year, the SMP 500 add 584% in total returns. So even though these valuations look pretty good and some of the teams actually exceeded that in the NHL, you still would have done better for the most part looking at the SMP 500. Yeah, I guess the one thing I'll say, and I'll go to Edmonton just because I kind of know the situation a little bit better is, I mean, the arena had a huge impact to that as well.

They got that new arena. They built it right before COVID hit. So they didn't, well, I guess it would have been a little bit before COVID hit. But, you know, when the cost of materials went through the roof, all that stuff, they actually got their brand new arena for. for relatively cheap compared to what you can pay now. And I mean, it just kind of shows you what a good couple of long stretches in the playoffs can do too, because they were one of the more profitable teams over the last few years.

Because as you mentioned, they don't have to pay salaries in the playoffs. They pay the players, I think, a bonus for every round they win, but it's just pure profit for them at that point in time. And if anybody's attended a Canadian team during a playoff season, you know you pay a pretty penny for tickets as well.

So, yeah, the arena, I think, had a big impact on Edmonton plus landing. I mean, probably one of the best players of our generation also helps to sell tickets. Yeah, that does inherit. Yeah. But I think just I'm pretty sure we're talking, I can't even remember the operating income of the Oilers. I think it was like $119 million or something like that in operating profit. So you're looking at, I might be completely wrong on that, but I'm pretty sure I've watched that.

I kind of seen that couple of months ago. So you're looking at pretty expensive prices to pay. And a lot of it is, again, like I mentioned, the brand power, you know, the portion of the building they own all that type of stuff. So it's not just, it's a little bit more difficult to value than, you know, like a publicly traded equity or something going up 8X. But yeah. Yeah. Yeah, exactly. And you also have to take these with the grain of salt.

And I'm showing here all the valuations. And what we will be doing is we'll be posting this, this full episode. on YouTube. So feel free to go and have a look. So even if you're not a joint TCI subscriber, we'll make it available there. So you'll be able to see all the visuals that we have. And a couple caveats here, of course, the Vegas Golden Knights and Seattle Cracken, those are both expansion. And what's kind of difficult is the expansion fee does not necessarily include the arena and the value associated with that. So the expansion fee for the Golden Knights was 500 million expansion fee for the Seattle

Cracken four years later, so in 2021 was 650 and now the talks of a Texas team would be that the expansion fee, not including the potential arena, would be in would be north of $2 billion.

So, and that seems like it's going to happen in the next three, four years. The way that the NHL is talking, they actually release a statement on their website saying that now they're exploring with a billionaire group, I can't remember the exact one, but they just posted that a few weeks ago. So it just goes to show that these are extremely valuable. They're in short supply. It's a oligopoly, for lack of

better words. It's like close clubs. So yes, there are expansion teams that are being added and I think for most of the leagues, but the reality is there's not that many. So if you're rich, if you're a billionaire, if you're a company and you won these kind of assets, there's just not that many. So even though there might not be a whole lot of demand or a lot of demand because just who can't afford this, the demand still outstrips the supply for these professional sports franchises. And at the end of the day, if you're going to, you know, if there is something that you need to watch live, it's sports. Because it's really difficult. Even if you try recording it and you want to watch it the next day, try staying off social media and not see

the score. Really live sports, I think it is one of the only things that comes to mind that you have to watch live. Yeah, I mean, they generate a ton of, there's a reason why there's huge TV contracts for these, you know, sports leagues as well. The one thing before people fact check me on this, because I was wrong. Eminton doesn't own, the, Edmonton doesn't own any of the arena. City of Edmonton owns 100%, and they just lease it. So yeah, I was, I was wrong on that. But because I thought that would have helped the value quite a bit, but yeah, they don't own it. I thought they owned a small chunk of it, but they don't. Okay.

Yeah, no, exactly. And you kind of see that quite a bit. So you see teams that either lease or own part of the arena. Some teams own the old thing as well. So just or the company or the entity behind it. So yeah, that's a good caveat. So let's move on here. I think we covered the NHL pretty well.

We've booked a cottage for early July. And I'm already picturing the kind of trip where the days are. are pretty simple. Mornings outside with coffee, my daughter running around with our new puppy, afternoons by the lake, and those quiet evenings with my wife watching the sunset with a glass of wine after everyone else has gone to bed. And while we're away enjoying that time together, the timing also made me think about our own home back in Ottawa. Early July is such a busy time in this city, with Canada Day and Blues Fest bringing so many people in. That got me thinking about how our home be put to good use while we're out of town as it's just sitting empty.

Listing our home on Airbnb could create some extra income to help cover part of the trip while also letting another family enjoy our neighborhood during one of the best time to visit Ottawa. They could walk over to a local coffee shop, spend the afternoon at a nearby beach, and use our place as a comfortable home base after taking in everything happening downtown. Your home might be worth more than you think. Find out how much at Airbnb.c.com. smart investing doesn't have to be complicated or time consuming with bemo all-in-one

ETFs you get a complete diversified portfolio wrapped up in a single ticker it's easy whether you're conservative investor or more aggressive bemo has an all-in-one solution for you and now it's even more cost effective bemo has cut management fees to just 0.15% on select asset allocation ETFs helping you keep more of what you earn. Simplify your investing today at BMOETFs.com. So we'll go over. Let's see here. We'll do, we can do the NBA if I can find it. Let's do the MLB. There you go. So I have the MLB up. So MLB is pretty interesting here. I've seen some of the slowest growth. I think the overall multiple that you're seeing with the teams compared to 2012 is actually smaller than the NHL. But the most valuable teams are quite valuable.

So I have the, but let's just do the top three here. The New York King Key is valued at about $8.2 billion. The L.E. Dodgers, $6.8 billion. And you have the Boston Redstocks at 4.8. And then if you go down the list for Toronto, it's right smack down the middle at 14 out of 30 teams at 2.15 billion. Again, that's at the end of 2025 here. And the ranges go from like 2x roughly during that time frame all the way to, I think on the I end, you're seeing like close to 5x or slightly above 5x. I think San Francisco Giants are the team that increase the most in value. So it's interesting, not surprising because baseball has been struggling with viewership over the years, they've tweaked some rules as well to try and get it more faster, more entertaining

for newer and younger viewers. But this is probably the laggard of the list, not in like the top value, but in the increase in the sports franchises. Yeah, I think you could also, if you're going to compare this to like a stock term, like the MLB is probably, you know, kind of the MLB and NFL would be kind of the blue chip situation where the NHL much faster growing, especially in the United States. Like they've, they've grown exceptionally fast in the U.S. because there wasn't a lot of hockey exposure there 15, 20 years ago. So there's a lot more room for, you know, teams to run like this just because they've grown

it so extensively. While baseball has been a staple in the U.S. for, got how long? Century, even more. Yeah. Well, I think that's the issue, right? I think baseball is more of the mature. league of all of them. Believe it or not, NHL is probably right, like, not mature,

but the second slowest growing, but it is growing faster, definitely. And the NBA, the next one that I'll show, this one is, this one is the high growth stock, if you want. The NBA, I'm surprised. Oh, yeah. The NBA is like, yeah, that I wasn't surprised.

The NBA has grown extremely quickly over the last decade. You're seeing, I can't, I don't know what the max comes. contracts are, but I think they're like 50 million. I don't follow the NBA all that much. But you're looking here like pretty much every single team has seen a 10x increase since 2012. So the most valuable, the Golden State Warriors, 11 billion, obviously they've been a really good team. So I'm not overall surprise. And it's a big market to LA Lakers number two at 10 billion and the New York Knicks at 9.75 billion. The Golden State Warriors,

There's 24X over in that time period, which is crazy. And then you have the Toronto Raptors at 5.4 billion, which is part of the MLSC. So 14X during that time period. But yeah, the NBA overall, the fastest growing league, definitely by far in terms of the multiples they've seen. Yeah. I would have figured the NHL. I did not know the NBA was exploding this much. I don't watch much basketball.

I think they were also one of the first ones to embrace sports gambling, right? So there's just a bunch of things. Like they, again, I don't know too much about the NBA, but the little that I know is that they are not shy of embracing new things. And I think it's really, really helped them out there. And then we'll finish with the last one here, the NFL. I know there's, I'm well aware there's not, you know, there's not a team in Canada. That's okay.

Unfortunately. But, yeah, unfortunately. But I know a lot of Kenny. Canadians follow the NFL. I know I'm not big into the NFL personally, but the NFL as the highest average valuation, but the multiples, I would say, are not as high, although they are the second highest in terms of the increase since 2012. And the three most valuable teams are the Dallas Cowboys. I think most people would probably have guessed that, the LA Rams, the New York Giants. So 13 billion, 10.5 and 10 billion respectively. I'd love to include some Canadian teams in here, but there are none. So yeah, that's the NFL and the gap, the delta between the most valuable and the least valuable is not that high. So it's 13 billion for the Dallas Cowboys and the Cincinnati Bengals are at 5.25. Whereas if you start looking at some of the other leagues, it's a bit different where you see a bit more of a gap, right? So you start looking at the NHL.

You're looking at, you know, 4.4 billion, 1.3 for the least valuable. The M.S. LB, it's $8 billion versus $1 billion, and then NBA 11 versus 3.5. So there's a bit less of a gap in the NFL. You can tell that there's a bit more value regardless of the market there. Yeah, I mean, it's probably, I don't know what baseball would be more popular than the NFL in the states? I'd say it'd be pretty close. I think the NFL is more popular. Yeah.

Yeah. They'd be pretty close. Americans love their baseball. Yeah, I used to pay attention a lot to the NFL. I don't really anymore. I was an Oakland Raiders fan for a long time and they sucked so badly for so long that I just kind of faded away. But, yeah, I mean, in terms of Rogers, I think it's, as we had mentioned earlier, I think it's a good buy like that they're buying these assets. I can't see them.

Like, there was a lot of people when Bell sold them that had mentioned that they had peaked in value. I just don't see that. sports, sports betting, sports in general is just getting more popular. And it's going to be a strong. And I think it's just scarcity too, right? It's just, you know, it comes back to basic economics, like supply and demand. And the reality is the demand outstrip the supply and has been for a long time. And you can argue that it will probably continue to be that way, even though not many people can afford these team.

There is still way more people that can't afford them than the amount of teams, especially in the big four leagues. And then just showing some final numbers here. So the average value by far, the NFL is the highest at 7.1 billion. That's the latest. So 2025. The NBA 5.35, MLB, 2.6, if we round up, and NHL 2.2. So clearly, you can tell the NBA, MLB, I wasn't wrong about that they're clearly they're bit stagnant I think it's fair to say just by the average value the increase in value and I think

it's reflected I think by how they're acting they're really trying to tweet the game to make sure that it's more entertaining for fans and as much of a fan of baseball and I played that growing up I am even for me I find like you know unless you have a few beverage sometimes it's uh oh it is pretty boring and

hockey is one of the more exciting games. I know it's not as popular in the U.S. because it's more of a Canadian thing, but even if there is not goals scored, it's still like you can get like plays. And if you don't pay attention for a second, like you will, there's a good chance you'll miss something. Or baseball, I mean, you can be on your phone for 90% of the game and you probably still haven't missed much. Yeah, I went to a prospects game in Arizona with my wife and she fell asleep a few times. I had the nudgeer awake a few times at the baseball game. So yeah, it's, I mean, they put in the pitch, the pitch clock to kind of try and speed it up. But it's a pretty tough league to watch

throughout the whole year, like 160 plus games, couple hours a game. And it's, it's without question, the slowest out of all of them. So I don't know what else they can do to make it more interesting. I mean, they got like the 30 minute recaps of the game. That would be. Yeah. That's not, that's not bad. Yeah. No, and even that I find sometimes. it's a bit Yeah. It's a bit long. So I think it's more of a product thing

for the MLB. And of course, I only did North America teams. And I think if you start looking at Europe, obviously, and you start looking at soccer, football, then I think you probably have teams

that are more valuable. I haven't checked that out than the most valuable. Yeah, NFL teams. Like some of the European teams are just worth gobs and gobs of money. But overall, I mean, it's hard to blame billionaires to want to get into that.

And at the end of the day, I think it's a good deal for Rogers from my perspective because even if the cash flows are a bit lumpy, just what you can get in terms of merchandisings, the media rights, all of the things that are associated with that, it just seems very unlikely that these assets won't keep increasing. And you can also make a case that even though some of the leagues have outpaced, the SNP 500 during that period of time. So it's essentially all of the leagues have either outpace or equal except the MLB. So even the NHL is at 5.2X, so pretty close to the SNP 500, not quite there. The NFL 6.1, the NBA 13.6 on average, and then the MLB at 3.5. But I think

one thing you can say for all of them with some degree of certainty is that they're probably also going to be less volatile than the market. If the market's like goes down like, 30% tomorrow. I'm pretty sure that sports franchises won't be going down by 30% because the billionaires will still be billionaires and there's still going to be a, I don't think the demand will be that affected for, for these limited assets. No. And I'm, they've been raising ticket prices year after year after year and people still go to the games, at least in the, in the hotbed cities, like the prices have just gone through the roof and they're not exactly the liquid assets, but I mean, if Rogers were to put the Maple Leafs for sale, you'd have a

lineup of people, obviously not a very large lineup, because you need a lot of money, but you definitely have people that be interested in buying it. Oh, yeah, whether it's pension funds. I think, you know, pension funds did own the Maple Leafs at some point. I can't remember. I think it might have been the teachers, but yeah, yeah, it doesn't have to only be billionaires. It could also be a large institution, company. knees, like, you name it.

And then Rogers is starting to be kind of one of a kind. Like, there's a few other big sports conglomerates, but Rogers is definitely at the top there. So there's a couple of other ones. There's one that owns like a bunch of teams North America and some football teams. So I can't remember the exact name. But you also have like Fenway Sports and Entertainment that owns a penguins, the Red Sox and a few other themes. But yeah, so Rogers definitely kind of in a very select few of owning a lot of major sports franchises. Yeah, so the Ontario Teachers pension plan own them for 20 years up to 2012.

And that's when they sold their 80% stake to Bell and Rogers. So yeah. Yeah. They sold too early. They sold too early. But I know it was a fun segment. It was just really fun. digging through the data and just looking at that. And of course, take these numbers with a grain

assault. First of all, these are the types of assets that are not transacted that frequently. You know, a small market in the NHL, like a Columbus, even if Columbus sold tomorrow to a new owner, it's going to be very difficult to assess how that impacts the value of the maple leaves, right? For example, because they're just completely different in terms of brand recognition. But if Montreal, all the HABs sold, then, you know, you could probably, you know, use that as a comp for the Maple Leafs because they're pretty close in value. So I think take that with a grain of salt. These are just kind of general assessments. And Forbes has something really interesting on their website. People can look that up is every team they actually have like the value, but they're breaking down versus like

the value of the league being there, the value of the asset, the value of the stadium. So they break it down, which is kind of cool to see. And of course, yeah, again, like I said, just take these numbers with a grain of salt, but it's as accurate as we could get. We've booked a cottage for early July, and I'm already picturing the kind of trip where the days are pretty simple.

Mornings outside with coffee, my daughter running around with our new puppy, afternoons by the lake, and those quiet evenings with my wife watching the sunset with a glass of wine after everyone else has gone to bed. And while we're away enjoying that time together, the timing also made me think about our own home back in Ottawa. Early July is such a busy time in this city, with Canada Day and Blues Fest bringing so many people in.

That got me thinking about how our home could be put to good use while we're out of town as it's just sitting empty. Listing our home on Airbnb could create some extra income to help cover part of the trip, while also letting another family enjoy our neighborhood during one of the best time to visit Ottawa. They could walk over to a local coffee shop, spend the afternoon at a nearby beach, and use our place as a comfortable home base after taking in everything happening downtown. Your home might be worth more than you think. Find out how much at Airbnb.ca slash host. If you're a DIY investor ready to take control of your portfolio, BMO All In One ETFs simplify the process. Whether you're new to investing or looking to streamline your existing holding, These all-in-one solutions are designed to help you invest smarter.

With management fees on popular portfolios now reduced to 0.15%, you get professional diversification at a lower cost. Check out the asset allocation ETFs at bemoetifs.com. Anything else to add before we move on to the equal weight SMP 500? No, I'll get into it. So I've had, as I had mentioned at the start, I've had a lot of questions. on this equal weight versus cap weighted, where they're weighted based on market cap strategy with the SP 500. And I think, right,

just a quick note, RSP is the ticker that's the most commonly use equal weight ETF for anyone wondering. Yeah, and then there's, I think there's EQL here in Canada. So RSP will be the US one and then there's EQL in Canada. I think they have EQL.f, which would be the hedge version.

I believe, or the unhetched. It's one of the two. There's a dot F and a regular, which will be equal weight. So EQL would be at the Invesco SMP 500. Yeah. Yeah. So right now, like the concentration of the S&P 500 is the pretty hotly debated topic and why a lot of people are asking about this.

So many people who believe that AI will provide outsized returns for years, kind of enjoy that concentration so they don't. really mind buying, you know, a cap-weighted S&P 500 ETF. But on the flip side, there's kind of those who know this entire situation is kind of walking, you know, is walking a tightrope. Even a small thing that can go wrong can have some pretty drastic impacts on the S&P 500. And I think even the biggest AI bulls would tell you that if, if KPEC spending slows or profits don't materialize, we would see some pretty gigantic levels of, of, of, you know, volatility from the S&P 500.

And the main reason for this is the top 10 holdings now account for nearly 40% of the entire index. And then when we consider what those holdings are, which are mostly hyperscalers, chip companies, and now we actually have memory companies entering the fold. Buying the S&P 500 right now is kind of a gigantic bet on the continued advancements of artificial intelligence. It's pretty much undeniable. Like I think Micron got into the top 10.

They're at least in the top 15, but they might have actually broke into the top 10 as well. And out of the top 15 holdings of the S&P 500, you could argue that the only four that don't have huge exposure in regards to artificial intelligence would be Walmart, Berkshire Hathaway, Eli Lilly, and J.P. Morgan. So that'd be around 73% of the top 15 holdings that are heavily influenced by AI, like the Amazon's, the metas, the alphabets, companies like that. So I think the idea that the SP 500 gives you levels of diversification just isn't really the case anymore. It's not like you're going all in on a particular sector, but I think if you're not questioning the entire, you know, the VOO and chill mentality right now, I don't, I think you're not really paying attention. And I'm not suggesting that anybody go out and dump their S&P 500 ETF, but just kind of acknowledge the levels, the levels of concentration here. So those who, you know, people are starting to ask the question. They've come to me about whether or not swapping to an equal weight methodology would be wiser.

So you're not really trying to time the market here. You still own the 500 largest stocks in the United States. You just kind of reduce your overall exposure to the hypers, the chip companies, the memory names that have just driven wild returns over the last while. And just to clarify, so Micron is in the top 10 now. Yeah. So it's 1.64% of the index, right? behind Tesla, which is 1.76. Yeah.

So it's, well, I guess you could, well, Tesla does have pretty big AI exposure. That would be another one that I'd say, you know, they still have the automobile side, but they're, they'll be heavily, heavily influenced by I think any sort of AI drawdown would probably hit them pretty hard as well. But the top 10 waiting. Elon drawdowns. Yeah, the Elon drawdown. But yeah, the, the top 10 waitings in the SEP 500 account for 40% of the index, but for only

around 30% of the. earnings. So the S&P market cap weighted index trades at around 22 and a half X forward earnings, I believe, while the equal weight is around 17x. So you're paying a 32% premium on earnings that are growing faster, but I think, and I didn't actually run actual numbers on this, but I think if you strip out NVIDIA, the earnings growth actually starts to kind of normalize with the rest of the company. So you're paying a big premium for not a huge amount of excess earnings growth. And I mean, the reasoning is pretty simple. The market is betting that these companies will see larger earnings growth in the future due to AI infrastructure, eventually generating, you know,

larger profits. So it's applying a premium. And this is why people are becoming concerned about the cap weighted index. If it doesn't materialize, there's a good chance that that premium might go away. So it would probably mean a pretty big drawdown in the SP 500. And again, this isn't really meant to scare anybody or anything. It's just kind of the simple reality when that much of the index is concentrated in one area, especially when that area is a new piece of tech with largely unproven profits. If those don't materialize, you're going to see kind of a big dip. And if we look to an average...

Well, it cuts both ways, right? So the, I mean, you're looking, you, if you are in the SMP 500 versus the equal weight, like, you've completely crushed it over the last 10 years. Total returns, you're looking at 212% for the equal weight and 313% for the SMP 500. The gap's still pretty high. So 86% for the regular SMP 500 and 55.7 if you're looking at the equal weight over the last five years. So it's really, it's not insignificant. If you start looking now one year, it starts getting a bit closer. So you're looking at 22% versus 18 roughly.

And then year to date, it's actually flipped. So year to date, you're performing better if you have the equal weight at 12.12.2% versus 10% for the SMP 500. Yeah. And if you go back to that five year chart, you'll kind of see they were relatively head to head. until about the time where chat GPT started to come out, like mid-20203, maybe. I think that was. Yeah, you're right.

So they were about equal weight. And then you start to see this large deviation. And the reasoning for that deviation is kind of exactly what I'm talking about here is just a huge run-up. Well, actually, a bit after it came out, the equal weight outperformed until early 2023. And then it was pretty close. And then you can really start seeing the outperformance by the market cap weighted around the summer of 2023. Yeah. Yeah.

It's, there was a big deviation in 2023 that's kind of ran up now, which again is why, you know, these funds are seeing a lot of inflows. Because a lot of what a lot of people do or a lot of, you know, institutions or whatever it may be, when there's this amount of deviation, they, you know, some, they do go equal weight. and there's a lot of inflows. I believe RSP earlier on in the year was actually the most popular ETF in the United States in terms of inflows. It was for a short period of time. I think it was back in January or February.

But yeah, it's seen a ton of inflows and this is probably why. If we look to an average drawdown, and I ran this, I kind of told Claude to say, you know, if these top 10 holdings were to fall 40% on average through a bare market, what would the S&P 500 lose? So if we look to an average drawdown of 40%,

those top 10 alone would cause the S&P 500 to fall by pretty much 15%. So that would assume the other 490 would stay flat, which would not be the case. In the equal weight version, if those top 10 were to fall 40%, the fund would only fall around 0.8% in the same situation. So that's kind of the mentality that a lot of people are looking at. And some kind of might think the 40% draw,

down is extreme. But I mean, and I think that's kind of just an idea of the bull market state we're in right now, but I don't really think it's extreme at all. I mean, most of the hyperscalers companies fell that much in 2022. I think Alphabet fell 40, 45 percent in 2022. So to think that these companies don't have the potential to draw down 40 percent, I think they do. And then if you were to extend it to something like micron, I would imagine it would be much

larger of a drawdown. kind of the memory demand were to fall out. I think, you know, 40% might be best case in that situation. You kind of have to remember the stock is up a thousand percent over the last few years on memory demand, which is typically like one of the most cyclical areas of the market. And the theory here going equal weight is you turn that. Well, even Microsoft is down close to 20% this year. Yeah. It's down 18%. Yeah. So a 40% fall from a lot of these hyperscale. And again, we would need some sort of fallout in terms of, you know, kind of the AI story right now for this to happen. I'm not saying it is guaranteed to happen. I'm just saying if it were to happen.

We'd probably see, I would be fully expecting those types of drawdowns from a lot of these companies. So the theory is you go equal weight. You turn that 40% exposure from the top 10 into around 2%. So you've significantly reduced your exposure to these companies that are kind of price to perfection. And you allocate it more to. to large and mid-cap U.S. companies. So the difficulty with equal weight on the flip side is it constantly kind of chops the winners and adds to the losers. So during large runups, you suffer.

And we showed you that chart where during this huge AI runup, equal weight kind of got crushed. And the best way I can describe an equal weight strategy right now is you're trading your tech exposure for real economy exposure. So the equal weight S&P 500 ETE. have carries more than double the weightings to industrials, financials, basic materials, consumer staples. So it's kind of a flip. You're going way down on tech and you're going way up in kind of, yeah, real economy stocks. And the equal weight strategy has paid off during previous

market drawdown. So after the dot com bust, equal weight outperform market cap weighted leading up to the surge right before the financial crisis. Then it started underperforming again. Post-financial crisis, equal weight would go on to outperform a cap-weighted S&P 500 ETF in six of seven years. And in 2022, equal weight also outperform the cap-weighted funds. So it tends to do better when, you know, the market kind of falls out. There's only around 20 percent or sorry, 20 years worth of history of these. I think they came out early 2000s. And if you did utilize this strategy at the start of the year because you were worried

about valuations, you have done quite well. as we had mentioned, six months is pretty much an insignificant period of time in the grand scheme of the markets, but equal weight has outperformed the cap weighted this year. And that's primarily because the Mag 7 have struggled. I think Alphabet might be one of the only good performing ones, but the Mag 7 have kind of got crushed by, you know, the other other companies in the SP 500. And kind of flipping to the dangers of this, I think in this regard being early here is effectively being wrong. Like, you could be exactly right. You could have the 100% correct theory that AI is a bubble. We're going to see some huge drawdowns in AI related names. But if it doesn't

happen until 2028, 2029, the markets run up through that point. Like, you in practice, you were absolutely correct, but you would need a massive drawdown in the SP 500 to probably come ahead of that investment wise. So the other risk is historically market returns have been heavily concentrated into a very small amount of companies. I think it's something crazy like 4% or something. So with a cap-weighted fund, a market-cap-weighted fund, you're kind of letting those winners grow and make up a larger amount of the allocations, which is generally a good thing because you want your winners to win. Again, you have that small concentration of companies that tend to pull most of the weight. And with an equal-weighted fund, the fund is constantly trimming, trimming the winners and replacing

them with the losers, effectively. The ones that go down in allocation, they're going to trim off the top and add it to the bottom. So I would kind of view, if you're considering doing this, I would kind of view equal weight as more of a defensive hedge, I guess, than a long-term option. You want your larger winners to make up a larger portion of the index. I mean, we're in such a precarious position right now, I guess, because of the invention of a brand new piece of tech. It's kind of hard to know who the winners will be moving forward. And as somebody who owns individual stocks, I don't really have to consider any. of this. I, I, I kind of mitigate my AI exposure through kind of rebalancing, adding, removing.

Right now, I think I'm around 20% exposure to kind of the hyperscalers and chip names versus, I think it's like 38 some percent on the SP 500. And I've allocated a lot of money over the last year or so to kind of real economy stocks all while kind of keeping my, the AI names in my portfolio, but I haven't really been adding new capital to them. So in a way, I'm kind of deploying this equal weight strategy in the fact that I'm increasing my industrial financial consumer staple exposure, that one would do by going equal weight. I'm just doing it through individual stocks. So I guess the answer to if somebody were to ask me if this was a viable strategy, I would say yes, because it would be a bit contradictory of me to say that I don't feel it's strong all while

kind of doing it myself. But yeah, that's about it. I want to. But you know what it could work well, too and I think where I'd put back on you a little bit here is and I know that's not your intention but it doesn't have to be an all or nothing so if you have someone who's 100% the S&P 500 nothing's preventing them to sell half of it and put half of it in the equal weight yeah or yeah or put a quarter of it in the equal weight or you have a sort of systematic approach where if the S&P 500 raises 5% every time it rises 5% well you cut five percent or 10 percent whatever percentage you want and you put that in the equal weight so you still continue to have broad market exposure but you slowly trim your market cap weighted exposure to those

top names so that would be also an approach for people who don't necessarily want to just be all equal weighted but they still want part of it then you can do a bit of a hybrid approach yeah it all depends on, I mean, your risk tolerance, time horizon, like what what you really want to do. But if you're sitting there thinking of this, I think you're actually going down the right path. Like, if you're thinking that the index is too concentrated and you might want to kind of mitigate that by going equal weight and you're kind of wondering if you're crazy in this regard, I don't really think you are at all. I mean, it's kind of been something that I've been doing for a year now, again, a different strategy, but I have been doing this a bit. So yeah, it's, the market is is very

expensive right now. The SP 500, I believe during the dot com bubble was 25%. I think the top 10 made up of the SP 500 and now we're sitting at nearly 40%. So if you're asking this question, I think, I think it's a good question to ask. You just kind of need to figure out your individual situation, kind of how you want to structure your portfolio. The final thing I guess I'll add we went over the funds that you can get exposure to, but the equal weight comes with more fees. So there's a lot more turnover. There's a lot more transactional cost to maintain an equal weight fund than there is a cap weighted fund. Because again, as I had mentioned, they got to trim the winners consistently and kind of

add to those ones with lower allocations. So you're going to get fees anywhere from 20 to 30 basis points, whereas you can buy something like VO, what are they? They're like three basis points. where you can find a Canadian fund, like let's just say, BMO ZSP, I think that one's pretty cheap. Yeah. I think it's like nine basis points, maybe even less. So if you're going this strategy, you are going to pay a bit more fees.

No, exactly. So I think it's always about tradeoffs. I think I've talked about that quite a few times, but in investing, but also in life, pretty much a lot of the decisions you make, it's all about tradeoffs and just realizing what tradeoffs you're doing. So if you're going equal weight, a tradeoff is, you'll pay slightly more fees. You'll have less upside because it's equal weight, but at the same time,

your downside will be a bit lower as well because you're not as concentrated. So, I mean, to me, it's a very reasonable approach. I don't blame people or looking at that. And the beauty with having some exposure to the equal weight is you still are exposed to the market. You're just more diversified because that's what it is, right? People think they're in the end,

they're super diversifying the S&P 500, but they forget that the top 10 names is what you're looking at probably close to like 35%, something like that. Nearly 40 now, I think. Nearly 40. So yeah, so the top 10 names are just a massive part of the index. So if you have 10 names that are 40% of your portfolio, if that's the only ETF you own, I mean, you know, it depends what your definition of diversification is.

So I think that's just an important caveat for people when decided, deciding what to do with the allocation here. Yeah, because I had a lot of people who were asking, been told a lot that we don't want to time the market. I don't think this is a timing the market situation at all. You're just kind of, it would be the exact same thing if you owned a portfolio of individual stocks and you just kind of reallocated to, let's just say, those more defensive sectors, the industrials, the consumer staples. Like, I don't think anybody would accuse anyone of timing the market if they were kind of just reallocating their portfolio. But a lot of people are kind of worried that they're trying to do this. Yeah, that's effectively what it is. Yeah.

Yeah. Okay. No, this was a great segment. Anything else you want to add before we call it an episode? Okay. I think this was a fun one. So it's definitely a bit more quiet on investing news right now. So I think these were really fun segments.

I think it was fun to talk about the R. And we're both NHL fans. So clearly the sports league really eye-opening in terms of the numbers and the growth scene there as well. And maybe some, you know, at some point in the next five to 10 years, you'll start seeing more and more of these sports franchises or company that owns those that kind of spin off public entities. So you get regular investors can actually get a part of them and actually like be shareholders.

I think the Packers, I think. Yeah, but I think they don't have. much economic value. I think it's just like, yeah, you just like can say you own the packers, but I don't think it's really worth anything. It'd be a pretty good, pretty smart move to actually do it, but you know, you can actually get dividends or whatever it is depending. I think it would probably have to be like special dividends giving the lumpiness of the profits for these companies. But I think that'd be like a pretty cool thing to see as you start seeing a bit more of these that are on the public markets. I mean, you have to think the valuation would just go

through the roof or a lot of them if they start trading publicly because a lot of regular investors would jump into that because, you know, why not own my favorite team or whatever it is, right? Yeah, MLSE spin-off maybe in coming in the years. We'll see. Yeah. If Ed Rogers is listening, you know, maybe he's a listener of the podcast and he's like, oh, yeah, maybe we can bail out our slowing telco business with our sports business. They've raised some money. I would see. Yeah, that's for sure. So, uh, no, it was fun episode. Thank you everyone for listening. We are back with our, well, never that, not that we didn't have regular episodes, but now, uh, you know, we're done the episodes that we record in advance. So we're back to our normal record recording schedule. So, uh, we'll keep coming back with new episodes on Thursdays and Mondays. And make sure you don't miss our live show on Fridays on YouTube, Twitter. It's available there. Me and Dan Foch. And keep an eye. too in terms of for the podcast. I mentioned that on the Thursday episode, but make sure you keep an eye. We are doing a rebranding a little bit for the podcast. So you'll be seeing the next couple of weeks the podcast cover change.

So it'll still be the same podcast, but it'll be slightly different. So don't be surprised if you see something different in your feet. But having said that, thanks for listening. And we will see you again on Thursday. The Canadian Investor podcast should not be construed as investment or financial advice. The host and guest featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.