Dana D'Auria

4 weeks ago | aaii.com | John McDermott |John Mcdermott |Dana D'Auria

It may come as a surprise to those who have placed their nest eggs in an S&P 500 index fund, or an actively managed version thereof, that they are actually making a decision to exclude a significant portion of the equity universe. Academic theory, particularly William Sharpe’s capital asset prices study, suggests market-capitalization (cap) weighting is an appropriate starting point for the weight of any asset class in the portfolio, including small caps.