The issue I have with all of these approaches is that it is extremely complicated for most folks to understand. I believe the industry is constantly looking for the magic bullet to out preform the markets for a competitive asset gathering advantage. MPT is based on the assumptions that markets are efficient and investors make rational decisions that are in their best interest. Of course neither are true. There is clearly a solution to long term performance in excess of the indexes which by definition are AVERAGE returns for a typically large basket of equities. If average is OK then go for it. I prefer to do better and we do.
Why would this affect the underlying index? As best I can tell SPY only has a 6bp drag vs SPX over the past 20+ years, which is presumably fees.
Unless the theory is that index additions/deletions are responsible for the gap you found.
The issue I have with all of these approaches is that it is extremely complicated for most folks to understand. I believe the industry is constantly looking for the magic bullet to out preform the markets for a competitive asset gathering advantage. MPT is based on the assumptions that markets are efficient and investors make rational decisions that are in their best interest. Of course neither are true. There is clearly a solution to long term performance in excess of the indexes which by definition are AVERAGE returns for a typically large basket of equities. If average is OK then go for it. I prefer to do better and we do.