Equal Weight vs Score-Proportional Allocation

Once a strategy has selected which assets to hold, it must decide how much of each to hold. The two most common approaches in tactical allocation are equal weighting — giving every selected position the same allocation — and score-proportional weighting — giving positions larger allocations in proportion to their momentum or composite scores. Each approach reflects a fundamentally different philosophy about the relationship between signal strength and optimal position sizing.

Equal Weight

Equal weighting assigns the same allocation to every selected position: in a portfolio holding four assets, each receives 25%. The approach makes no distinction between the highest-ranked and lowest-ranked selected assets, treating the selection decision (whether to hold) as informative while treating the ranking decision (how much to hold) as unreliable.

The research justification for equal weighting is that momentum rankings are noisy — the difference between the first and fourth-ranked asset in any given month is often statistically insignificant, driven by small return differences that are within the margin of measurement error. By equal-weighting, the strategy avoids concentrating capital based on distinctions that may be random rather than meaningful.

Score-Proportional

Score-proportional weighting allocates capital in proportion to each asset's momentum or composite score. An asset with a score twice as high as another receives twice the allocation. This approach treats the full ranking information as meaningful, not just the binary selection decision.

The advantage is that the portfolio can express varying levels of conviction. When one asset has dramatically stronger momentum than others, the portfolio concentrates accordingly. When scores are similar, the weights converge toward equal. The disadvantage is that concentration in the highest-scoring asset amplifies the impact of ranking errors — if the top-ranked asset reverses, its outsized allocation produces an outsized portfolio loss.

Strategies Using Each Approach

Equal Weight is used by the majority of strategies:

• GTAA5, GTAA13, GTAA-AGG3 — all Faber strategies
• BAA-B, PAA, HAA-B — Keller strategies
• Mama Bear, Papa Bear, MBB

Score-Proportional is used by the elasticity-based strategies:

• EAA-OFF and EAA-DEF

Which Is Better?

Diversification research generally favors equal weighting for portfolios with fewer than ten positions, where the ranking noise is highest. Score-proportional weighting can add value in larger universes where score differentials are more likely to reflect genuine momentum differences. Most practitioners default to equal weight unless they have strong evidence that their scoring system produces reliable, persistent rankings — a high bar that few signals meet.