Are Alternatively Weighted Indexes Worth Their Weight?
Author:
Steven A. Schoenfeld, Chief Investment Strategist - Global Quantitative Management Group, Northern Trust Global Investments
Source:
Northern Trust Global Investments
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Date:
April, 2006
Pages:
20
Format:
PDF Format
Abstract:
Alternatively weighted indexes have increasingly captured investor
attention and as a result, a growing range of indexes have been brought
to market. But what exactly are these products? The investment
strategists within Northern Trusts quantitative management team
analyzed the construction methodology of a variety of alternatively
weighted indexes and arrived at two conclusions: 1) many alternatively
weighted indexes represent specific investment strategies and as such,
have made either an explicit or implicit bet in their construction.
These products may be useful as specialized performance benchmarks but
it is important for investors to understand exactly what they are
buying, and 2) for a variety of reasons, capitalization weighted
indexes will remain the industry standard for asset class benchmarks.
The attached white paper explores this topic in greater detail.