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Getting All the Pieces of the Puzzle
| Content Provider | Semantic Scholar |
|---|---|
| Author | Surz, Ron |
| Copyright Year | 2009 |
| Abstract | This chapter focuses on solving the equity investment part of the puzzle, which entails—the composition of the equity market so it can be determined how one wants to allocate within it, and the metric used to identify talent so one can make an informed active–passive decision. It addresses the question of choosing the best family of market indexes. Following this, it explores the concept of investment manager evaluation and provides an understanding of the construction of the best benchmarks. It begins with a distinction of indexes and benchmarks. In most portfolio construction programs, value and growth styles receive roughly market-weighted allocations, and the investor usually applies strategic bets above or below these market weights to enhance performance. Because risk is defined as tracking error, index huggers have an edge in manager searches. But, it should be recognized that alpha and R-squared are from different alphabets—low tracking error limits the alpha that can be achieved. Populating asset allocations with index huggers makes for a mediocre but safe portfolio. The challenge in solving the portfolio construction puzzle is defining the puzzle pieces. Better solutions emerge when puzzle pieces fit together and utilize mutually exclusive and exhaustive style indexes that explicitly include core. Only two style index families meet these criteria—Surz Style Pure SM and Morningstar. Morningstar indexes are domestic only, while Surz Style Pure SM indexes are both domestic and foreign. |
| Starting Page | 13 |
| Ending Page | 21 |
| Page Count | 9 |
| File Format | PDF HTM / HTML |
| DOI | 10.1016/B978-0-12-374992-5.00002-8 |
| Alternate Webpage(s) | https://www.advisorperspectives.com/pdfs/Getting_All_the_Pieces_of_the_Puzzle.pdf |
| Alternate Webpage(s) | https://doi.org/10.1016/B978-0-12-374992-5.00002-8 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
