Mining for Alpha with Index Funds 

Exploring the risks and rewards of indexes. 

The composition of index funds has changed dramatically over the past 25 years, and not necessarily for the better. Most investors consider a typical index fund to track a broad index that holds hundreds of stocks weighted by market capitalization. In reality, these funds have fewer constituents and employ a wider range of approaches to weight their holdings.

The median equity index fund today holds 150 stocks, a decrease from 500 in 1998. Given these trends, investors need to understand the risks and rewards associated with an index fund’s underlying index.

In this comprehensive report, we dig into the target indexes of nearly 1,000 index-tracking mutual funds and ETFs to gain more insight into the magnitude of these differences in composition and the potential trade-offs for investors.