Market-cap weighted: The best approach for investors?

It may seem timeless but the standard index fund has always evolved in response to market pressures

Justin Reynolds

S&P 500 index

Amid a flurry of more esoteric ETF products, the venerable market cap-weighted index seems to stand above the fray,unchanging. But it too has continually evolved with Research Affiliates’ proposal in the May edition of ETF Insider for a reconstituted index making just the latest case for reform.

Several significant adjustments have been made to the oldest, the S&P 500, since its launch in 1957. Until 1989 index rebalancing – the requirement to adjust for mergers, acquisitions, bankruptcies,and shifts in market capitalisation – took place on the day the revised index was announced. Since then changes have been pre-announced in advance to give fund managers a ‘grace period’ to complete trades.

This article first appeared in ETF Insider, ETF Stream's monthly ETF magazine for professional investors in Europe. To read the full article, click here.

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