Compendium

Fund Types and Index Methodology — Tier 3 Family Index

18 min read

Fund Types and Index Methodology

Comprehensive catalog of investment vehicle structures (mutual funds, ETFs, closed-end funds, BDCs, private funds) and the major index families that benchmark them. Covers fund mechanics (NAV strike, creation/redemption, fee structures), private market vehicle structures (LP/GP, evergreen, secondaries), and the construction methodologies of equity, bond, volatility, commodity, and factor indices that drive trillions in passive flows.

1. Open-End Mutual Funds

Origin and scale

  • First US open-end mutual fund: Massachusetts Investors Trust, launched 21 March 1924 in Boston by MFS (Massachusetts Financial Services); pooled investment vehicle redeemable at NAV; survived 1929 crash and remains operating ~102 years later
  • Investment Company Act of 1940: codifies open-end mutual fund regulation; “Section 36(b) fiduciary duty” with respect to fees; “12b-1 fees” under Rule 12b-1 (1980) allow marketing/distribution expenses
  • Global AUM: ~USD 30 trillion+ across regulated open-end funds (ICI Investment Company Institute Fact Book 2024); US share ~USD 22 trillion of which equity ~USD 14 trillion

Active vs passive

  • Active mutual funds: portfolio manager makes security selection; targets benchmark-beating returns net of fees; typical expense ratio 0.5–1.5 percent for equity, 0.3–0.8 percent for fixed income
  • Passive index funds: replicate index by full replication or stratified sampling; expense ratios 0.02–0.20 percent typical; first index mutual fund Vanguard 500 Index Fund (VFINX) launched 31 August 1976 by John Bogle (later “First Index Investment Trust”)
  • Active-to-passive migration: passive share of US fund AUM crossed 50 percent in 2019; SPIVA scorecard (S&P Dow Jones Indices) consistently shows 80–90 percent of active large-cap funds underperform S&P 500 over 10-year periods

Share class structure

Same underlying portfolio, different fee structures:

  • Class A: front-end load (typically 3.5–5.75 percent of investment, declining at breakpoints); lower ongoing 12b-1 fee (0.25 percent typical); appropriate for buy-and-hold
  • Class B: back-end load (CDSC contingent deferred sales charge, declining over 6–8 years, often 5 percent year 1 to 0 year 7+); higher 12b-1 fees (~1 percent); converts to Class A after CDSC schedule; largely phased out post-2010
  • Class C: level load; no front-end, small CDSC (1 percent year 1); high ongoing 12b-1 (~1 percent); does not convert; suitable for shorter holding periods
  • Class I (Institutional): no load, low ongoing fees; minimums USD 1M+ historically (now widely available via RIA wrap accounts)
  • Class R: retirement-only share class for 401(k) and ERISA plans; R1–R6 sub-classes; R6 zero 12b-1 fee
  • Class Z: typically zero-load, employee/founder class
  • Class K: institutional-equivalent retirement share class
  • No-load: directly purchased; no sales charge but may have redemption fee for short-term trading (<30 days)
  • Net Asset Value: (assets minus liabilities) divided by shares outstanding; calculated once per business day at 16:00 ET strike (US funds)
  • Forward pricing: SEC Rule 22c-1 — purchases and redemptions execute at next-calculated NAV (prevents stale-price arbitrage)
  • Late-trading scandal 2003: NY AG Eliot Spitzer investigation; Bank of America Nations Funds, Bank One, Janus, Strong Capital settlements; rule strengthening followed
  • Fair-value pricing: international securities marked to estimated fair value when foreign market closed but US market still open (mandated by SEC after 2003)

2. Exchange-Traded Funds (ETFs)

Origin and structure

  • First US ETF: SPDR S&P 500 (SPY) launched 22 January 1993 by State Street; structured as unit investment trust; “Spider”; >USD 500B AUM in 2024 making it largest single ETF
  • Earlier: Toronto Index Participation Units (TIPs 35) Toronto Stock Exchange 1990 (preceded SPY)
  • Global ETF AUM: ~USD 10 trillion (2024); US ~USD 8 trillion; growing 15–20 percent per year

Primary vs secondary market

  • Primary (creation/redemption): only Authorized Participants (APs, typically large broker-dealers like Goldman, JPMorgan, Citadel Securities, Jane Street, Virtu, Susquehanna) can transact directly with ETF issuer
    • Creation units: typically 25,000–50,000 ETF shares (USD 1M–5M notional)
    • In-kind creation: AP delivers basket of underlying securities + cash component, receives ETF shares; tax-efficient (no capital gain triggered at fund level)
    • In-kind redemption: AP returns ETF shares, receives basket of underlying securities
  • Secondary market: retail and institutional trade ETF shares intraday on exchanges (NYSE Arca, Nasdaq, Cboe BZX); arbitrage between NAV and market price kept narrow (typically <5 basis points for large ETFs) by AP arbitrage

Major ETF issuers (by AUM 2024)

  1. BlackRock iShares — ~USD 3.5T AUM; ~390 US ETFs; IVV (S&P 500), AGG (Bloomberg US Agg)
  2. Vanguard — ~USD 3T ETF AUM; VOO, VTI, BND; lowest expense ratios; mutualized ownership
  3. State Street SPDR — ~USD 1.3T; SPY, GLD (gold), XLK/XLF/XLE sector ETFs
  4. Invesco — ~USD 500B; QQQ (Nasdaq-100), BKLN (bank loans)
  5. Charles Schwab — ~USD 350B; SCHB, SCHX; zero-commission self-directed channel
  6. First Trust — ~USD 200B; AlphaDEX, sector and thematic
  7. ProShares — leveraged and inverse ETFs (SSO 2x S&P, SQQQ -3x Nasdaq); USD ~70B
  8. ARK Invest (Cathie Wood) — thematic active ETFs ARKK, ARKG; USD ~10B (peaked ~USD 60B 2021)
  9. WisdomTree — fundamental-weighted ETFs; ~USD 100B
  10. Global X — thematic and income; ~USD 50B
  11. VanEck — gold miners GDX/GDXJ; ~USD 80B

Mutual fund ETF share class

  • Vanguard patent (US 6,879,964): single fund offering both mutual fund and ETF share classes; granted 2003, expired May 2023; gave Vanguard 20-year structural tax advantage
  • SEC ruling 2025: approved exemptive relief allowing competitors (DFA, Fidelity, Morgan Stanley, JPMorgan) to file dual-share-class funds; expected wave of mutual-fund-to-ETF conversions and dual structures

Active ETFs

  • Until 2019: required daily portfolio disclosure (deterred active managers concerned about front-running)
  • SEC ANT rule 2019 (April): allowed semi-transparent active ETFs (Precidian ActiveShares, NYSE AMS, T. Rowe Price proxy portfolio); disclosure quarterly with delayed snapshot
  • JPMorgan JEPI (JPMorgan Equity Premium Income) — ~USD 35B AUM 2024; covered-call active ETF; one of the largest active ETF strategies
  • 2024 active ETF AUM: ~USD 800B and growing fastest segment

3. Closed-End Funds (CEFs)

  • Structure: fixed share count established at IPO; shares trade on exchange at market price; do not redeem at NAV
  • Premium/discount to NAV: shares often trade at 5–20 percent discount to NAV (or premium during retail enthusiasm); discount arbitrage rarely fully closes
  • US AUM: ~USD 300B (2024); ICI tracked ~440 CEFs
  • Common specialties:
    • Municipal bond CEFs — Nuveen, BlackRock, PIMCO; tax-advantaged income; often levered 30–35 percent
    • High-yield credit — Eaton Vance, BlackRock; lever via senior notes (capital structure leverage) up to 50 percent
    • Specialty equity — Adams Diversified Equity Fund (ADX, oldest US CEF, 1929)
  • RICs Registered Investment Companies: pass-through tax structure (90 percent distribution requirement under IRC Subchapter M); applies to mutual funds, CEFs, ETFs, BDCs
  • Activist CEF arbitrage: Saba Capital, Bulldog Investors (Phil Goldstein), Karpus push for tender offers or open-ending to close discount

4. Business Development Companies (BDCs)

  • Statutory creation: 1980 amendment to Investment Company Act 1940 (Sections 54–65); designed to channel capital to mid-market US companies
  • Structure: closed-end RIC; required 70 percent qualifying investments in eligible portfolio companies (US private or thinly traded public); leverage cap 2:1 debt-to-equity after 2018 SBCAA (was 1:1)
  • US BDC AUM: ~USD 300B+ (2024) split public and private (non-traded)

Public BDCs

  • Ares Capital (ARCC) — largest, ~USD 25B portfolio
  • Blackstone Private Credit (BCRED) — non-traded BDC, ~USD 70B
  • Owl Rock Business Development — merged with Blue Owl 2021
  • Golub Capital BDC (GBDC) — ~USD 9B
  • Main Street Capital (MAIN) — ~USD 5B, internally managed
  • Sixth Street Specialty Lending (TSLX) — ~USD 3B
  • FS KKR Capital (FSK) — ~USD 14B

5. REITs (Real Estate Investment Trusts)

Cross-reference real-estate-finance (separate family index covering equity REITs, mortgage REITs, public non-traded, private REITs).

6. Private Funds

Private equity (buyout)

  • Global PE AUM: ~USD 13 trillion (Preqin 2024) including dry powder ~USD 4 trillion
  • Top buyout firms:
    • KKR & Co. (Kohlberg Kravis Roberts; founded 1976; AUM ~USD 600B)
    • Blackstone Group (Schwarzman, Peterson 1985; AUM ~USD 1.1 trillion; world’s largest alt manager)
    • Apollo Global Management (Black, Harris, Rowan 1990; AUM ~USD 700B; merged with Athene)
    • Carlyle Group (1987; AUM ~USD 425B)
    • TPG (Texas Pacific Group; 1992; AUM ~USD 220B)
    • Bain Capital (1984 Mitt Romney; AUM ~USD 180B)
    • Advent International (Boston; AUM ~USD 100B)
    • EQT Partners (Stockholm 1994; AUM EUR ~250B)
    • Vista Equity Partners (Robert Smith 2000; tech specialist; AUM ~USD 100B)
    • Thoma Bravo (Chicago; tech buyout; AUM ~USD 165B)
    • Permira (London; AUM EUR ~80B)
    • CVC Capital Partners (Luxembourg; AUM EUR ~190B; IPO April 2024)
    • Cinven (UK; AUM EUR ~40B)
    • Hellman & Friedman (San Francisco; AUM ~USD 100B)
    • Warburg Pincus (New York 1966; AUM ~USD 85B)
    • Silver Lake (tech buyout; AUM ~USD 100B)

Venture capital

  • Top VC firms (Sequoia Capital, Andreessen Horowitz a16z, Benchmark, Accel, Founders Fund, Khosla Ventures, Greylock, Index Ventures, GV (Google Ventures), General Catalyst, Lightspeed, Bessemer, Insight Partners, Tiger Global, Coatue)
  • YC (Y Combinator) — 2005 Paul Graham + Jessica Livingston + Robert Morris + Trevor Blackwell; ~5,000 companies funded; AirBnB, Stripe, DoorDash, Coinbase, Dropbox, Twitch alumni
  • Techstars — 2006 Boulder accelerator; ~4,500 companies
  • 500 Global (formerly 500 Startups) — Dave McClure 2010; ~3,000 portfolio

Hedge funds

  • Global hedge fund AUM: ~USD 5 trillion (HFR 2024)
  • Largest by AUM:
    • Bridgewater Associates (Ray Dalio 1975; ~USD 125B; Westport CT; All Weather, Pure Alpha)
    • Citadel (Ken Griffin 1990; ~USD 65B; Miami HQ relocated 2022)
    • Renaissance Technologies (Jim Simons d.May 2024; founded 1982; Medallion Fund mythical Sharpe ~2.5 closed to outsiders)
    • Two Sigma (David Siegel, John Overdeck; quant; ~USD 70B)
    • Millennium Management (Izzy Englander 1989; multi-strategy; ~USD 70B)
    • D.E. Shaw (David Shaw 1988; quant; ~USD 60B)
    • Brevan Howard (Alan Howard; macro; ~USD 35B)
    • Point72 (Steve Cohen 2014 successor to SAC Capital; ~USD 35B)
    • Marshall Wace (Paul Marshall, Ian Wace 1997; ~USD 65B)
    • Balyasny Asset Management (Dmitry Balyasny; ~USD 25B)
    • Schonfeld Strategic Advisors (Steve Schonfeld; ~USD 13B)
    • Jane Street (proprietary trading + ETF market making; ~USD 14B trading capital)
    • ExodusPoint Capital (Michael Gelband ex-Millennium; ~USD 13B)
    • Soros Fund Management (George Soros now family office; ~USD 25B)

Private credit / direct lending

  • AUM: ~USD 2 trillion (2024); fastest-growing alt segment; competing with regional banks
  • Top managers: Ares Management, Apollo (Athene insurance link), Blackstone Credit, Blue Owl (Owl Rock + Dyal), Sixth Street, HPS Investment Partners, Antares Capital, Golub Capital
  • Products: senior secured first-lien (most), unitranche (single-tranche blended senior + subordinated), mezzanine debt, distressed/special situations
  • Spread: SOFR + 500–700 basis points for senior secured middle-market typical 2024

Infrastructure

  • Brookfield Asset Management Infrastructure — Toronto; ~USD 200B infra AUM
  • Macquarie Asset Management — Australian; pioneer infra fund manager
  • Global Infrastructure Partners (GIP) — acquired by BlackRock October 2024 (USD 12.5 billion, BlackRock’s largest acquisition); ~USD 170B AUM
  • Stonepeak Infrastructure Partners — New York; ~USD 60B
  • EQT Infrastructure — Stockholm; ~EUR 35B per fund
  • KKR Global Infrastructure — ~USD 80B AUM
  • I Squared Capital — ~USD 40B
  • Sectors: PPP toll roads, airports, regulated utilities, midstream energy, renewable generation, data centers, digital infrastructure (fiber, towers)

Real assets and real estate

  • Brookfield, Blackstone, Carlyle, Starwood, Greystar — major private real estate fund managers
  • See real-estate-finance

Secondaries

  • Ardian (Paris; ~EUR 165B AUM; one of largest secondaries platforms)
  • Lexington Partners (acquired by Franklin Templeton 2022; ~USD 65B)
  • Goldman Sachs Vintage Funds — ~USD 50B
  • HarbourVest Partners — ~USD 130B AUM total
  • LGT Capital Partners (Liechtenstein royal family) — ~USD 100B
  • Coller Capital — pioneer secondaries; ~USD 35B
  • Continuation funds — sponsor-led secondary where GP rolls assets into new vehicle; massive growth 2023–2024 as IPO/M&A exit windows closed; ~USD 100B+ executed 2023

7. Private Fund Structures

LP/GP fund

  • Limited partnership: GP (General Partner — fund manager) commits 1–5 percent capital; LPs (Limited Partners — pension funds, endowments, SWFs, family offices) commit 95–99 percent
  • Fund life: 10 years base term plus 2 one-year extensions typical (12-year max for buyout); 10–12 years VC
  • Investment period: years 1–5 typical (calling capital, making investments)
  • Harvest period: years 6–10 (returning capital, distributing exits)
  • Fee waterfall (American whole-fund or European deal-by-deal):
    • Management fee — 2 percent of committed capital during investment period, stepping down to 1–1.5 percent of invested capital thereafter
    • Preferred return (hurdle rate) — 8 percent IRR LP first
    • GP catch-up — 100 percent of distributions until GP receives 20 percent of cumulative profit
    • Carried interest — 20 percent of profits after pref + catch-up (typical “2 and 20”)
    • Tier-2 funds: 1.5 percent management + 10–15 percent carry above hurdle for credit/infrastructure

Evergreen and semi-liquid

  • Evergreen funds: open-ended structures; periodic NAV-based subscriptions and redemptions; gating typical
  • Interval funds: regulated under 1940 Act; quarterly tender offer to repurchase 5–25 percent of shares at NAV; ~USD 80B AUM US (2024); growing rapidly
  • Tender offer funds: less frequent (annual or semi-annual); discretionary tenders
  • Non-traded REIT/BDC: monthly subscriptions, quarterly redemptions; Blackstone BREIT, Starwood SREIT, Blue Owl OBDC

Other structures

  • SPVs (Special Purpose Vehicles) — single-asset; growing in family office and co-investment
  • Co-investments — LPs invest alongside fund in specific deals at reduced/no fee carry; LPs prize for return enhancement
  • Continuation funds — see secondaries above

8. Robo-Advisors

  • Betterment (Jon Stein 2008) — ~USD 50B AUM 2024
  • Wealthfront (Andy Rachleff, Dan Carroll 2008; acquired by UBS pending 2022 then deal canceled) — ~USD 75B AUM
  • Schwab Intelligent Portfolios — free (no advisory fee; controversy over cash allocation); ~USD 80B
  • Vanguard Personal Advisor Services — hybrid (algorithmic + human CFP); ~USD 300B AUM (largest)
  • Fidelity Go — entry-level (free under USD 25k); ~USD 20B
  • Ellevest — Sallie Krawcheck; women-focused
  • Combined US robo AUM: ~USD 1 trillion 2024

9. S&P 500 Index Methodology

  • Provider: S&P Dow Jones Indices (joint venture S&P Global + CME Group)
  • Selection: S&P US Index Committee (subjective committee judgment, not rules-only); meets monthly; changes announced via S&P press release

Eligibility criteria

  1. Market capitalization: minimum USD 18 billion (raised from USD 14.5B in 2023, USD 8.2B 2020)
  2. Domicile: US-domiciled (or significant US operations); not foreign-domiciled with primary listing abroad
  3. Liquidity: ratio of annual dollar trading volume to float-adjusted market cap >= 0.75
  4. Public float: >= 10 percent of shares outstanding publicly available
  5. Earnings: positive GAAP earnings most recent quarter AND cumulative positive over four most recent consecutive quarters
  6. Exchange listing: NYSE, Nasdaq, Cboe BZX (not OTC)
  7. Sector balance: committee considers GICS sector representation

Weighting

  • Float-adjusted market capitalization weighting: weight = (price × float-adjusted shares) / total float-adjusted market cap of index
  • Top 10 holdings ~30 percent of index 2024 (Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet A+C, Berkshire B, Tesla, Eli Lilly)
  • Rebalancing: quarterly third Friday of March/June/September/December

Recent changes (2020–2024)

  • Tesla added 21 December 2020 (highest market-cap company ever added at inclusion; ~USD 660B)
  • Block (formerly Square) added 2020
  • Match Group added 2021
  • Super Micro Computer (SMCI) added March 2024 (AI server boom)
  • CrowdStrike (CRWD) added June 2024 (replacing Robert Half RHI)
  • Removals 2023–2024 include legacy media and retail names rotated out as caps fell below threshold

10. Russell Index Methodology (FTSE Russell)

Family

  • Russell 3000: top 3,000 US companies by market cap (~98 percent of US market)
  • Russell 1000: largest 1,000 of Russell 3000 (large-cap)
  • Russell 2000: smallest 2,000 of Russell 3000 (small-cap benchmark)
  • Russell Midcap: 800 mid-cap companies (Russell 1000 minus top 200)
  • Russell Microcap: ~1,500 companies below Russell 3000 cutoff

Style

  • Russell 1000 Growth / Value — split based on two-factor model: book-to-price (value) and IBES forecast long-term growth + sales-per-share growth (growth)
  • Style probability: stocks at boundary get partial weight in each style index

Reconstitution

  • Annual single rebalance late June (Russell Reconstitution Day) — typically the highest US trading volume day of the year by share count due to passive index funds repositioning simultaneously
  • Rank day late April based on market cap; effective late June
  • Quarterly IPO additions — to Russell indexes if meeting criteria (added quarterly post-IPO rather than waiting full year)

Weighting

  • Float-adjusted market cap weighted
  • Quantitative methodology (no discretionary committee) — distinguishes from S&P 500 selection

11. MSCI Global Equity Indices

Major MSCI indices

  • MSCI ACWI (All Country World Index) — global benchmark; ~2,900 constituents; developed + emerging
  • MSCI World — developed markets only; ~1,500 constituents; 23 DM countries
  • MSCI EAFE — Europe, Australasia, Far East; non-US developed (excludes US + Canada); ~800 constituents
  • MSCI Emerging Markets — ~1,400 constituents; 24 EM countries
  • MSCI Frontier Markets — ~80 constituents; pre-EM
  • Country indices: MSCI USA, MSCI Japan, MSCI Europe, MSCI China, MSCI India

Methodology

  • Float-adjusted market cap weighted; Foreign Inclusion Factor (FIF) scales foreign-investor accessible float
  • Quarterly index review (February, May, August, November)
  • Semi-annual rebalance (May, November) major reviews

Country classification

  • Annual review publishes Market Classification Review (June)
  • Promotion/demotion thresholds: economic development, size and liquidity, market accessibility
  • China A-shares inclusion 2018–2019: MSCI added at 5 percent inclusion factor June 2018, raised to 20 percent August 2019; estimated USD 50B+ passive inflows
  • Saudi Arabia promoted DM-to-EM May 2019; UAE upgraded earlier 2014; Pakistan demoted EM-to-FM 2021
  • Russia removed March 2022 post-Ukraine invasion (set to zero from MSCI EM)

12. FTSE Russell, Solactive

  • FTSE Russell (London Stock Exchange Group): FTSE 100, FTSE 250, FTSE All-Share (UK); FTSE 4Good ESG; FTSE EPRA Nareit (REITs)
  • Solactive (Frankfurt 2007): white-label index provider; powers many thematic ETFs (Global X, Defiance); ~USD 250B+ benchmarked

13. Bond Indices

Bloomberg fixed income

  • Bloomberg US Aggregate Bond Index (“the Agg”) — formerly Lehman Aggregate (acquired 2008); the bond market benchmark; ~USD 25T par value; Treasuries (40 percent), agency MBS (28 percent), investment-grade corporates (24 percent), agency, ABS, CMBS
  • Bloomberg US Treasury — Treasury-only; ~USD 13T par
  • Bloomberg US Corporate IG
  • Bloomberg US High Yield
  • Bloomberg Global Aggregate — global investment-grade; multi-currency
  • Bloomberg Barclays Global-Aggregate (renamed Bloomberg Global Aggregate)

ICE BofA (Bank of America)

  • ICE BofA US Corporate Master — IG corporate
  • ICE BofA US High Yield Master II (H0A0) — junk bond benchmark
  • ICE BofA US Treasury Master

JPMorgan

  • EMBI Global — emerging market sovereign bonds USD-denominated; ~USD 1T notional
  • EMBI Global Diversified — country-capped variant (popular benchmark)
  • CEMBI — emerging market corporate
  • GBI-EM — emerging market local currency

FTSE / S&P municipal

  • FTSE World Government Bond Index (WGBI) — global sovereign IG; China inclusion phased 2021–2024
  • S&P Municipal Bond Index — US muni
  • Bloomberg Municipal Bond Index

14. Volatility Indices

Equity vol

  • VIX (Cboe Volatility Index) — 30-day implied volatility of S&P 500 options; calculated using variance swap replication methodology over weighted strips of out-of-the-money SPX call and put options; introduced 1993 (recalculated current methodology 2003)
  • VVIX — vol of VIX (implied vol of VIX options)
  • VXN — Cboe Nasdaq-100 Volatility Index
  • RVX — Cboe Russell 2000 Volatility
  • VStoxx — Euro Stoxx 50 implied vol (Eurex; analogous to VIX)
  • VHSI — Hang Seng Volatility
  • VKOSPI — Korea Kospi 200

Other vol indices

  • OVX — Cboe Crude Oil Volatility (USO ETF options)
  • GVZ — Cboe Gold Volatility (GLD options)
  • TYVIX — 10Y Treasury Volatility (discontinued 2020; resurrected as MOVE-equivalent)
  • MOVE Index — Merrill Lynch Option Volatility Estimate; weighted Treasury option-implied vol; bond market “VIX”
  • SKEW Index (Cboe) — measures tail risk of S&P 500; OTM put pricing relative to ATM
  • CSFB Fear Barometer — cost of OTM SPX put protection funded by selling OTM calls

15. Commodity Indices

  • BCOM Bloomberg Commodity Index — 23 commodities; capped weights (no single commodity >15 percent, no sector >33 percent); excess return + total return versions
  • S&P GSCI (Goldman Sachs Commodity Index) — production-weighted; energy-heavy (~60 percent typical)
  • DBC Invesco DB Commodity Index Tracking Fund — 14 commodities; rules-based optimization roll
  • RJI Rogers International Commodity Index — Jim Rogers; broad basket
  • Bloomberg Roll Select Commodity — minimizes contango cost via roll selection

16. Strategic Beta and Factor Indices

  • MSCI Factor Indices:
    • MSCI Quality — high ROE, low debt, stable earnings
    • MSCI Minimum Volatility — lowest realized volatility subset (USMV ETF)
    • MSCI Momentum — 6–12 month price momentum
    • MSCI Value — book-to-price, earnings yield, dividend yield
    • MSCI Size (Small) — small-cap tilt
  • Russell Defensive and Russell Dynamic — Russell-defined dynamic/defensive style splits
  • Equally weighted indices — S&P 500 Equal Weight (RSP), every constituent ~0.2 percent
  • Fundamental indices — RAFI (Research Affiliates Fundamental Index by Rob Arnott); weighted by sales, cash flow, book value, dividends rather than market cap
  • ESG indices:
    • MSCI ESG Leaders, MSCI KLD 400 Social — best-in-class
    • S&P 500 ESG — 25 percent excluded from S&P 500 by GICS subindustry exclusions and ESG score
    • FTSE4Good — UK lineage
    • Dow Jones Sustainability Index (DJSI) — SAM-evaluated

17. Methodology Controversies

ESG ratings disagreement

  • Berg, Koelbel, Rigobon 2019 (“Aggregate Confusion”) — correlation between major ESG rating providers (MSCI, Sustainalytics, Refinitiv, KLD, Vigeo Eiris, RobecoSAM) only ~0.54 on average; far lower than credit rating agency correlation ~0.99
  • Implication: ESG-screened portfolios vary dramatically by provider; greenwashing risk via provider selection

Index inclusion creates passive flows

  • Saudi Arabia inclusion 2018–2019 — MSCI EM addition triggered estimated USD 35B+ passive inflows; Saudi Tadawul index 2018 rallied
  • China A-share inclusion 2018–2019 — phased increase to 20 percent FIF triggered ~USD 80B inflows
  • S&P 500 index inclusion effect — historical 1–3 percent post-announcement bump; recent research (Bennett, Stulz, Wang 2020) suggests effect has faded as passive share has grown

Benchmark hugging

  • Active share (Cremers, Petajisto 2009) — percentage of portfolio holdings differing from benchmark; “closet indexers” with active share <60 percent charge active fees for near-passive exposure; significant SEC and FCA (UK) regulatory attention

Float adjustment debate

  • Saudi Aramco (2019 IPO) — only 1.5 percent IPO float; large-cap company but tiny float; index providers wrestled with appropriate weight

Adjacent Notes

Graph View