Tag Archives: capitalization weighting
Why Cap Weighting?
Journalists and others occasionally offer comparisons of capitalization-weighted index funds with other weighting schemes. Some of these efforts are more useful than others, but none, in my experience, identify the question that cap-weighted indices were initially designed to answer, and which accounts for their enduring economic significance. That question is, simply put: What is the…
- Categories Equities, S&P 500 & DJIA
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Getting Up to Speed with the Essentials of Index Construction
Why choose index investing? Yes, the merits of diversification and low cost are usually factored in, though one critical benefit that many do not realize is the transparency that is provided in the methodology of an independent index provider. To understand what goes into the design and methodology of an index, it’s important to note…
Capitalization and Its Discontents
Last week, readers of the Financial Times were regaled by suggestions that capitalization-weighted index funds were “hugely biased,” “undiversified,” and “too trusting of the market’s judgment on a handful of very large stocks.” Criticisms of cap weighting aren’t new, of course, and at least in the near term seem not to have been very effective…
- Categories Equities
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Bond Funds Unbound
Yesterday’s Wall Street Journal offered a profile of fixed income investors who aim to “break [the] chains” by which they are supposedly confined by index benchmarks. As the bond market falters, investors are seeking shelter in funds that aren’t tied to indexes. These bonds funds are known as “unconstrained,” “go-anywhere,” “absolute return” or “flexible” funds,…
- Categories Equities, Fixed Income, Strategy
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