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Indexing: Out with Tradition?

Traditional vs Non-Traditional Indexing

Nicolas Rabener
10 min read
8 Jul 2019

SUMMARY

  • Equal and fundamentally weighted equity indices outperformed market cap weighted in the US since 1990
  • The higher returns are explained by exposure to Value and Size factors
  • The outperformance is not consistent across time given factor cyclicality

THE RISE OF INDICES

There are now more than 3.7 million indices, according to the Index Industry Association (IIA) 2018 survey. That represents an increase of 438,000 over just the previous year. Although some areas of the financial markets might require more benchmarks or customized investment solutions, the number of indices seems excessive. In comparison, there are fewer than 6,000 exchange-traded funds (ETFs) globally that cover almost every imaginable niche.

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