Artifacts Exposed

Cap-Weighted Benchmarks:
In Search of a New Paradigm

July 2015

The investment industry has traditionally relied on a set of standard methodologies to classify, measure and document investment choices. But some of these metrics may have become overused and ineffective. We call these "artifacts."

Building on the findings of the recent study "The Folklore of Finance: How Beliefs and Behaviors Sabotage Success in the Investment Management Industry," The Center for Applied Research took a closer look at how cap-weighted indices influence investment decisions. These benchmarks have long been the cornerstone of investment management. But are they overused?

What we found is there's a pressing need to redefine benchmarks to capture each investor’s unique needs. The industry's value position must evolve to one that frames performance in terms of investors’ objectives. So we're opening a dialogue to three alternatives: smart or advanced beta, absolute return, and environmental and social benchmarks.