Which family of indexes’ design do you think best suits your client’s investment policy?

Which family of indexes’ design do you think best suits your client’s investment policy?

Assume you have a consulting client that is a non-profit organization with a $100 million reserve account that they invest in U.S. stocks. The client has hired you to help them implement their strategic asset allocation (SAA) using passive index funds. You can select among mutual funds that track major US stock market indexes. For example, if you select the CRSP Mega Cap US stock index, there is a Vanguard mutual fund available to track that index. For this question, you don’t have to worry about finding specific mutual funds, just in selecting which indexes you

want the mutual funds to track.
The client’s SAA is: 50% Large Cap US Stocks, 25% Mid Cap US Stocks, and 25% Small Cap US Stocks.
Use the following snapshot to help answer the following questions. Consider only the families of indexes highlighted in the picture (Russell, MSCI, S&P, and CRSP). The snapshot came from:
http://www.crsp.com/indexes-pages/key-concept-4-crsp-approach-combining-size-benchmarks

  1. [4] Given your client’s SAA, which family of indexes’ design do you think best suits your client’s investment policy? State very concisely the reason for your choice.
  2. [4] How does the definition of “Mid-cap” vary across the 4 index providers summarized in the figure?
  3. [4] How does the definition of “Small-cap” vary across the 4 index providers summarized in the figure?

 

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