Indexing uses quantitative risk-control techniques to replicate
the benchmark’s return with minimal expected tracking
error (and, by extension, with no expected alpha). This paper
presents both the theory that underlies index investing and
evidence to support its compelling and enduring advantages.
Those advantages include a historical record of outperforming
a majority of diversified equity and bond funds, relative
predictability versus the benchmark, tax efficiency, low manager
risk, diversification, and applicability to any market or
asset class.
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