Indices Acting Active: Index Decisions May Be More Active than You Think
Index funds are widely viewed as a way for investors to achieve broad, passive exposure to certain markets or asset classes. However, index fund investors may overlook the fact that the creation and maintenance of an index fund entails numerous active decisions. In practice, index providers make many choices that have important implications for the characteristics and returns of the benchmarks they produce. As with any investment strategy, it is imperative for investors in index funds to evaluate whether these choices align with and serve their investment objectives.