Index Research
FT Wilshire 5000
Avoid the Size Trap

Avoid the Size Trap

We examine two distinct methods of size segmentation in the US market: a count-based approach (applying a rigid stock count such as 1000 and 2000 stocks) and an adaptive cumulative market approach based on percentage allocation.

A major issue with the count-based approach is that it cannot adjust to the dynamic of significant shrinking of public markets. This has become critical given the halving of US listed stocks since the year 2000. Consequently, the count based approach has distorted the size allocation within US equities. We examine the consequences of these rival segmentation schemes on stability, performance, fundamental characteristics, and implementation properties of the resulting market capitalization weighted indexes.


The asset allocation decision is the first, and perhaps the most important, decision an investor will make. Asset allocation decisions determine around 90% of the performance of the portfolio. Within the sphere of equities, a key consideration is the size segment of a universe of stocks they wish to allocate investment to. Once this basic decision has been made, more detailed decisions are possible, such as whether to invest passively in an associated market capitalization portfolio, or perhaps in a non-market cap weighted portfolio designed to deliver characteristics such as increased diversification, reduced volatility, or factor exposure.

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