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Primary Article

Why Skillful Managers Prefer Equal-Weighted Benchmarks

Brett H Wander
The Journal of Wealth Management Summer 2003, 6 (1) 54-57; DOI: https://doi.org/10.3905/jwm.2003.320474
Brett H Wander
At the time of this writing, chief investment strategist at Analytic Investors.
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Abstract

The author investigates the relationship between a manager's ability to add value and the way the relevant benchmark index is constructed. He first observes that the larger the number of securities in the index, the higher the potential for added value, as this permits bets with index stocks rather than requiring the manager to go outside the index's universe. Secondly, he argues that equal-weighted indexes are easier to beat, as, the weight of each stock in the index being the same, the manager has an equal opportunity to over- or underweight each stock. He goes on to argue that market capitalization weighted indexes, by contrast, make it harder to overweight larger stocks and underweight smaller stocks.

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The Journal of Wealth Management
Vol. 6, Issue 1
Summer 2003
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Why Skillful Managers Prefer Equal-Weighted Benchmarks
Brett H Wander
The Journal of Wealth Management Apr 2003, 6 (1) 54-57; DOI: 10.3905/jwm.2003.320474

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Why Skillful Managers Prefer Equal-Weighted Benchmarks
Brett H Wander
The Journal of Wealth Management Apr 2003, 6 (1) 54-57; DOI: 10.3905/jwm.2003.320474
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