Equity Indexing

If i wanted to create passive index of us stocks for a large client of mine who has $400 million to allocate to this passive equity strategy, and they explicitly have told me they want to minimize transaction/rebalancing costs AFTER the portfolio has been implemented, wouldn’t full replication be the best method given they want to replicate the performance of the sp500? Im thinking that it would initially be costly to buy each stock, but after that’s done rebalancing costs and tracking risk would be minimal when compared to stratified sampling, optimization, fundamental risk factor matching or any other method…


This is explained very well in one of the EOCs

great this just ruined my morning

Volume 4 page 217 in the CFAI text. It’s all there. S&P 500 is referenced directly. Also, read the Exhibit that comes up after it (I think it’s on the next page), that talks about when stratified would be used a little more directly than in the text.

i presume it would depend on the # of stocks in the index and liquidity.

elizabeth taylor Wrote: ------------------------------------------------------- > great this just ruined my morning +1