PT  - JOURNAL ARTICLE
AU  - Patrick Gander
AU  - Daniel Leveau
AU  - Thomas Pfiffner
TI  - (R)evolution of Indexing Methods: <em>Why Was Diversification Forgotten?</em>
AID  - 10.3905/jii.2012.3.1.062
DP  - 2012 May 31
TA  - The Journal of Index Investing
PG  - 62--77
VI  - 3
IP  - 1
4099  - https://pm-research.com/content/3/1/62.short
4100  - https://pm-research.com/content/3/1/62.full
AB  - In the modern era of investing, diversification has become the cornerstone of most investors’ investment philosophy. Within the equity space, the primary focus of many an institutional investor has been to diversify their active equity managers—combining equity funds exhibiting uncorrelated return sources such as value, growth, momentum, and size—in order to smooth the return generation. Remarkably, the engrained virtues of diversification have hardly made their way through to the passive equity investment space. Market capitalization–weighted indexing still represents the vast majority of assets invested in passive equity strategies. In the past few years, however, a paradigm shift has started to occur, with a new breed of indexing methods entering the passive equity space. Investors are now beginning to evaluate and invest in new passive indexing methods, looking to diversify among their passive managers as well. This article scrutinizes these new alternatives to traditional passive investing and evaluates whether or not an investor can achieve diversification effects by adding alternative indexing approaches to the traditional index portfolio.TOPICS: Exchange-traded funds and applications, mutual fund performance, portfolio construction