Market capitalization weighted indices: the ultimate wisdom?

Market capitalization-weighted equity indices are often used in passive investment strategies. While these indices offer high transparency and low costs, there are increasing concentration problems: a small number of large companies dominate the weight in the index, which reduces diversification and increases portfolio volatility.

 

Are passive, index-oriented and market capitalization-weighted portfolio structures still an ideal solution for investors in the coming years? We address this question in the current issue of “Economic Situation and Strategy”.