Why you the choice of BSCA better than DS?
Equally weighted index supposed to be bias toward small caps. And small caps usually have greater credit risk than big caps. Therefore, I could have made case for DS pretty easily. What ya think? Where my reasoning does not make sense?
This is a fixed income index, it’s not weighted by market cap but the # of issues for a given company. There is often a negative correlation between amount of bonds issued and creditworthiness of issuer, so the more issues a company has, the higher weight in a value-weighted index, and thus more risk of “bums.” Spreading the weights evenly reduces the risk of having too many “bums.”
Got it!
Tks
Think of the bum’s problem. Companies will artifically have a larger market cap based on the amount of leverage they have. Thus a value-weighted index will be biased towards these “bums”.