“Paolo Caruso, the manager of the fund, says he wants to avoid benchmarks biased toward small-capitalization stocks.”
The type of index that would least likely address Caruso’s concern about bias is:
A. a price-weighted index.
B. a value-weighted index.
C. an equal-weighted index. C is correct. An equal-weighted index is biased toward small-cap companies.
So … I said A - not because price-weighted indices bias toward small cap stocks but rather because you don’t know what you are getting with a price-weighted index. It COULD have a small cap bias if by chance the stocks used to construct the index happened to have higher share prices for the smaller companies.
MORESO, the equal-weighted index does not intrinsically bias small cap … it is equal-weighted! Doesn’t equal mean equal - as in evenly distributed and without inherent bias?
Ok - I understand that argument … That answers my question. Thanks for the help all.
I don’t think this is true. Are you assuming this or do you have a reference? I know, for example, Fidelity Low Priced Stock is considered a mid-cap value fund - not because they are concentrated in mid-cap but rather because they span large to small cap.