Beat The S&P 500 By Buying The S&P 500?

Image source: PixabayShareTweetPostFlip Indexes are an incredibly important part of the financial markets. They provide an up-to-date, day-to-day view of market sentiment and are used as a benchmark to judge fund managers. However, despite their importance, the construction of indexes is still relatively rudimentary. The S&P 500, for example, is a market capitalisation-weighted index, which has significant drawbacks. Indeed, empirical analysis suggests that the built-in momentum effect inherent in cap-weighted indices leads to heavily concentrated portfolios. This has the impact of masking the index’s actual underperformance. For example, in 2015 the S&P 500 register positive performance but this performance was…