INDEXING: AN ALTERNATIVE APPROACH
Investment products that are based on indexes have roughly doubled in market share up to 20% since 2000, with market capitalization weighted indexes leading the way.
The accepted concepts of the efficient market hypothesis, modern portfolio theory and the capital asset pricing model suggest that investors should be content with average market returns. Despite the popularity of indexing, there remains a disagreement over the optimal benchmarking strategy. Do you understand the methodology of your index provider? What does the data indicate about alternative strategies that may improve results?
This report will discuss the historical dominance of market capitalization weighting, elaborate on the improvements offered by fundamental indexing, and provide investors with ideas on how to incorporate both into their portfolios.
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