Indexing by Market Capitalization

One of the most hotly contested issues among investors is whether one should invest actively or passively. In the following white paper we study this question in detail, cover the more general issue of what “passive” actually means, and in doing so, by implication indirectly address the issue of what should be considered as “active”.

Traditionally, the term “indexing” has been associated with the weighting of financial investments according to their level of market capitalization. The arguments favouring market capitalization weighted indexing over other approaches draw on Modern Portfolio Theory and the Efficient Market Hypothesis. In recent years, the superiority of this indexing approach has been increasingly called into question.